Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many

One year ago, your company purchased a machine used in manufacturing for

$105,000.

You have learned that a new machine is available that offers many advantages and that you can purchase it for

$160,000

today. The CCA rate applicable to both machines is

40%;

neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of

$55,000

per year for the next 10 years. The current machine is expected to produce EBITDA of

$23,000

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

35%,

and the opportunity cost of capital for this type of equipment is

10%.

Should your company replace its year-old machine?

What is the NPV of replacement?

The NPV of replacement is

$.

(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

Personal Finance

Authors: Jeff Madura, Hardeep Singh Gill

3rd Canadian Edition

978-0133035575, 133035573, 978-0133970524, 133970523, 978-0134040042

More Books

Students also viewed these Finance questions