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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
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 for $150,000 today. It will be deprecated on a straight line basis over an years after which has no salvage value. You expect that the new machine will contribute EBITDA samnings before intereses depreciation and amortization of $50.000 per year for the next ten years. The current machine is expected to produce EBITDA of $20.000 per year. The current machine is being depreciated on a straight line basis over a useful We of 11 years, after which it will have no salvage valor depreciation expense for the current machine 10.455 per year. Al other expenses of the two machines are identical. The market value today of the current machine is $50.000. Your company's tax rate la 35%and the opportunity cost of capital for this type of equipment is 118. Is it profitable to replace the year-old machine? The NPV of the replacement $ - 2180) Round to the nearest dollar)
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