Question
Partial solution: what is the amount ($) that goes with the -I + $ set up for this type of NPV break-even analysis? The equipment
Partial solution: what is the amount ($) that goes with the -I + $ set up for this type of NPV break-even analysis?
The equipment will be depreciated down to zero using straight-line depreciation over its ten-year life. The project is a 10-year project. The market value of the equipment at the end of year 10 is expected to be 0. The equipment will replace an existing old machine that has 10 years left of depreciation at a $3,333 a year. The estimated before tax proceeds from selling this existing machine is $18,000 today. The market value in 10 years for this old machine would be zero. The new equipment will generate annual cost savings of $12,000 before taxes. The tax rate is 34% and the discounting rate is 15%.
The solution is would look like this:
-I + $
where $ is the dollar amount
$ = Opp. cost of replaced (existing) asset + Investment in WC + any installation cost of new asset
You will enter in your answer only the amount for $ above
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