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The management of Tri - County Air Taxi, Inc., is considering the replacement of an old machine used in its helicopter repair facility. It is
The management of TriCounty Air Taxi, Inc., is considering the replacement of an old machine used in its helicopter repair facility. It is fully depreciated but it can be used by the corporation through If management decides to replace the old machine, James Transportation Company has offered to purchase it for $ on the replacement date. The old machine would have no salvage value in If the replacement occurs, a new machine would be acquired from Hillcrest Industries on December x The purchase price of $ for the new machine would be paid in cash at the time of replacement. Due to the increased efficiency of the new machine, estimated annual cash savings of $ would be generated through the end of its expected useful life. The new machine is not expected to have any salvage value at the end of TriCounty's management requires all investments to earn a percent aftertax return. The company's tax rate is percent. The new machine would be classified as threeyear property for MACRS purposes.
Use Appendix A and Exhibit for your reference. Use appropriate factors from the tables provided.
Required:
Compute the net present value of the machine replacement investment.
Compute the payback period for the replacement of the machine.
How much would the salvage value of the new machine have to be on December in order to turn the machine replacement into an acceptable investment?
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How much would the salvage value of the new machine have to be on December in order to turn the machine replacement into an acceptable investment? Round your intermediate calculations and final answer to the nearest whole dollar.
Salvage value of the new machine
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