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The Dauten Tay Corporation uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depreciated on a
The Dauten Tay Corporation uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its current book value is $2,400, and it can be sold for $2,500 at this time. Thus, the annual depreciation expense is \$2,400/6=\$400 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life. Dauten is offered a replacement machine which has cost of \$9,000 , an estimated useful life of 6 years, and an estimated salvage value of $800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase. The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; even so, the new machine's much greater efficiency would cause operating expenses to decline by \$1,000 per year. The new machine would require that inventories be increased by \$2,000 , but accounts payable would simultaneously increase by $800. Dauten's marginal federal-plus-state tax rate is 25%, and its WACC 11%. What is the NPV of the incremental cash flow stream? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent. $ Should the company replace the old machine?
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