Question
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 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 $50,000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 23 comma 000$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 40%?, and the opportunity cost of capital for this type of equipment is11%. Should your company replace its? year-old machine? What is the NPV of? replacement?
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