Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Needing help on figuring out NPV for this question. I keep coming up incorrect. One year ago, your company purchased a machine used in manufacturing

Needing help on figuring out NPV for this question. I keep coming up incorrect.

image text in transcribed
One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers many advantages: you can purchase it for $1?0,000 today. It will be depreciated on a straightline basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization} of $35,000 per year for the next ten years. The current machine is expected to produce EBITDA of $21,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,455 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 42%, and the opportunity cost of capital for this type of equipment is 11%. Is it protable to replace the yearold machine? The NW of the replacement is SD. (Round to the nearest dollar.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Finance Markets, Investments, And Financial Management

Authors: Ronald W. Melicher, Edgar A. Norton

17th Edition

1119561175, 978-1119561170

More Books

Students also viewed these Finance questions