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 $90.000. You have learned that a new machine is available that offers many

image text in transcribed
One year ago your company purchased a machine used in manufacturing for $90.000. You have learned that a new machine is available that offers many advantages and you can purchase it for $165,000 today. It will be depreciated on a straight line basis over 10 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 555,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $22,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8 182 per year. The market value today of the current machine is $60,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 11% Should your company replace its year-old machine? The NPV of replacing the year-old machine is $ (Round to the nearest dollar) Should your company replace its year-old machine? (Select the best choice below.) A. Yes, there is a profit from replacing the machine O B. No, there is a loss from replacing the machine d

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_2

Step: 3

blur-text-image_3

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

Intermediate Financial Theory

Authors: Jean-Pierre Danthine, John B. Donaldson

2nd Edition

0123693802, 978-0123693808

More Books

Students also viewed these Finance questions

Question

How do you add two harmonic motions having different frequencies?

Answered: 1 week ago

Question

10. Describe the relationship between communication and power.

Answered: 1 week ago