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Jones Industries owns a machine that was purchased 3 years ago for $250,000. The machine will be operational for 5 more years, at which time
Jones Industries owns a machine that was purchased 3 years ago for $250,000. The machine will be operational for 5 more years, at which time its resale value will be $7,500, but it could be sold now for $20,000. Jones can buy a new machine now which will reduce annual expenses from $255,000 to $100,000. The new machine would require a $10,000 increase in inventory. This increase in inventory will be liquidated at the end of 5 years. The new machine costs $500,000. It has a life of 5 years, and its net resale value then will be $25,000. The machines belongs to the CCA class 8, with a CCA rate of 20%. Assume that the tax rate is 40% and WACC = 15%. Should Jones Industries replace their old machine
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