The firm is considering the purchase of a new machine to replace an obsolete machine whose value today is estimated at $ 50,000 it is, however, in good working order and can last another ten years period at the end of which the obsolete machine will have a residual value of $ 5,000

the firm ordered and paid for a planning study which cost it $ 10,000 and the conclusions point in the direction of a reduction in costs. adjustment this idea of machine replacement brings the company substantial savings

this new machine would cost $ 260,000 to purchase. however the installation costs would be $ 8000, the transport costs and the costs to remove the old machine $ 2000. these costs can be capitalized for a fiscal. The new machine will have an economic life of ten years and will be worth $ 20,000 the firm requires a rate of return of 15% for this type of investment and the asset class of this type of machine is amortized by 25% the company's tax rate is 40%

here is the picture of annual costs

work to do:

1-calculate, algebraic formulas to support the NPV and interpret

2-calculate algebraic formulas to support the profitability index (IR), interpret

with the with the old machine machine New spent 40000 80000 $ LABOR 65000 5oooo IRAW Materials Machine interview 20000 $ 65000 $ 5500 A 15008 VARIOUS with the with the old machine machine New spent 40000 80000 $ LABOR 65000 5oooo IRAW Materials Machine interview 20000 $ 65000 $ 5500 A 15008 VARIOUS