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The current roasters are expected to produce a gross profit of $600,000 a year and, assuming a total economic life of 11 years and straight-line
The current roasters are expected to produce a gross profit of $600,000 a year and, assuming a total economic life of 11 years and straight-line depreciation, a profit before tax of $300,000. The current market value of the old roasters is $1.5 million. The companys tax rate is 45 percent, and its minimum acceptable rate of return is 10 percent. Ignoring possible taxes on sale of used equipment and assuming zero salvage values at the end of the roasters economic lives, should Caffe Vita replace its year-old roasters?
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