Replacement Analysis The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides The steamer has 6 years of remaining life If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year Its current book value is $3,575, and it can be sold on an Internet auction site for $4,165 at this time If the old steamer is not replaced, it can be sold for $800 at the end of its useful life Gilbert is considering purchasing the Side Steamer 3000 , a higher end steamer, which costs $12,900 and has an estimated useful life of 6 years with an estimated salvage value of $1,500 This steamer falls into the MACRS 5 years class, so the applicable depreciation rates are 20 00 , 32 00 , 19 20 , 11 52 , 11 52 , and 5 76 The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year the new machine's much greater efficiency would reduce operating expenses by $1,400 per year To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700 Gilbert's marginal federal plus state tax rate is 25 , and the project cost of capital is 12 a What is the NPV of the project Do not round intermediate calculations Round your answer to the nearest dollar b Should it replace the old steamer The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides The steamer has 6 years of remaining life If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year Its current book value is $3,575, and it can be sold on an Internet auction site for $4,165 at this time If the old steamer is not replaced, it can be sold for $800 at the end of its useful life Gilbert is considering purchasing the Side Steamer 3000, a higher end steamer, which costs $12,900 and has an estimated useful life of 6 years with an estimated salvage value of $1,500 This steamer falls into the MACRS 5 years class, so the applicable depreciation rates are 20 00 ,32 00 ,19 20 ,11 52 ,11 52 , and 5 76 The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year the new machine's much greater efficiency would reduce operating expenses by $1,400 per year To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700 Gilbert's marginal federal plus state tax rate is 25 , and the project cost of capital is 12 What is the NPV of the project Do not round intermediate calculations Round your answer to the nearest dollar $ Should it replace the old steamer The old steamer be replaced

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Replacement Analysis The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of

Replacement Analysis

Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,900 and has an estimated useful life of 6 years with an estimated salvage value of $1,500. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency would reduce operating expenses by $1,400 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 25%, and the project cost of capital is 12%.

a. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.

b. Should it replace the old steamer? image text in transcribed

The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,165 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,900 and has an estimated useful life of 6 years with an estimated salvage value of $1,500. This steamer falls into the MACRS 5 -years class, so the applicable depreciation rates are 20.00%,32.00%,19.20%,11.52%,11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency would reduce operating expenses by $1,400 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 25%, and the project cost of capital is 12%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should it replace the old steamer? The old steamer be replaced