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One year ago, your company purchased a machine used in manufacturing for $ 1 0 5 , 0 0 0 . You have learned that
One year ago, your company purchased a machine used in manufacturing for $ You have learned that a new
machine is available that offers many advantages and you can purchase it for $ today. It will be depreciated on
a straightline basis over years and has no salvage value. You expect that the new machine will produce a gross
margin revenues minus operating expenses other than depreciation of $ per year for the next years. The
current machine is expected to produce a gross margin of $ per year. The current machine is being depreciated
on a straightline basis over a useful life of years, and has no salvage value, so depreciation expense for the current
machine is $ per year. The market value today of the current machine is $ Your company's tax rate is
and the opportunity cost of capital for this type of equipment is Should your company replace its yearold
machine?
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