Meadville Widgets is considering the purchase of a fully automated widget finishing machine to replace an older but still functioning but more labor-intensive model. The machine being replaced was purchased 5 years ago for a price of $45,000.00 at which time it had an expected life of 10 years.

This machine is being depreciated by the straight-line method with an anticipated salvage value of $0.00 The current market value of this machine is estimated to be $27,000.00. The current machine requires one operator with an annual cost of $37,500.00 in salary and benefits.

The replacement machine has a purchase price of $79,500, a 5-year life, and an expected salvage value of $17,000. The new machine will require

a 440-volt three-phase electric service and a new concrete pad these installation expenses are $7,500. Meadville Widgets expect the maintenance costs to be

$5,000 as compared to the current costs of $6,000 and the defects to be $2,000 compared to current defect costs of $4,000.

Before considering the purchase of the new machine Meadville Widgets conducted an engineering study to determine if the installation costs

would be prohibitive, this study costs $5,000. In order to undertake this project, the firm will add $30,000 in debt at 11.5% and the required rate of return is 15%.

Meadville Widgets marginal tax rate is 34%

Any help is greatly appreciated!!

D E F G H Difference -34,500 A B 1 The Meadville Widgets Company 2 Replacement Analysis 3 Old Machine New Machine 4 Price 45,000 79,500 5 Shipping and Install 0 6 Original Life 10 7 Current Life 5 8 Original Salvage Value 0 9 Current Salvage Value 27,000 10 Book Value 22,500 11 Increase in Raw Materials 0 12 Depreciation 4,500 13 Salaries 37,500 14 Maintenance 6,000 15 Defects 4,000 16 Marginal Tax Rate 34.00% 34.00% 17 Required Return 15.00% 15.00% 18 Cash Flows Period 19 Initial Outlay 0 20 Annual After-Tax Savings 1 Depreciation Tax Benefit 2 22 Total ATCF 3 23 Terminal Cash Flow 4 24 5 25 Payback Period 26 Net Present Value (NPV) 27 Profitability Index (PI) 28 Internal Rate of Return (IRR) 29 MIRR 30 Cash Flows 0 0 0 0 Initial outlay is after the sale of the old machine After tax cash flows are adjusted for taxes The tax benefit of depreciation 21 0 After tax cash flow of sale of new machine Must calculate these values