Managers at RTHK are thinking of replacing its old fully depreciated sound mixer. This sound mixer has
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Question:
Managers at RTHK are thinking of replacing its old fully depreciated sound mixer. This sound mixer has zero after-tax cash flows associated with it. Two new models are available.Mixer X has a cost of $216,600, a five year expected life, and after-tax cash flows (including the tax shield from depreciation) of $89,200 per year.Mixer Y has a cost of $345,000, a ten year life, and after-tax cash flows (including the tax shield from depreciation) of $83,400 per year. No new technological developments are expected.The discount rate is 12 percent.Should RTHK replace the old mixer? If so, with X or Y? And, why?
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