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One year ago, your company purchased a machine used in manufacturing for $ 1 0 0 , 0 0 0 . You have learned that
One year ago, your company purchased a machine used in manufacturing for
$100,000.
You have learned that a new machine is available that offers many advantages and that you can purchase it for $150,000
today. The CCA rate applicable to both machines is 20%;
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 $60,000
per year for the next 10 years. The current machine is expected to produce EBITDA of $25,000
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 42%,
and the opportunity cost of capital for this type of equipment is 11%.
Should your company replace its year-old machine? a) what is the NPV of replacement (round to nearest dollar)
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