Question
The Woodruff Corporation purchased a piece of equipment three years ago for $245,000. It has an asset depreciation range (ADR) midpoint of eight years. The
The Woodruff Corporation purchased a piece of equipment three years ago for $245,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $87,750.
A new piece of equipment can be purchased for $336,000. It also has an ADR of eight years.
Assume the old and new equipment would provide the following operating gains (or losses) over the next six years.
| New Equipment | Old Equipment |
| $78,250 | $24,000 |
| $74,750 | $17,000 |
| $70,000 | $8,000 |
| $60,750 | $6,500 |
| $48,750 | $5750 |
| $45,250 | $-6,500 |
The Firm has a 25% tax rate and a 9% cost of capital.
A. What is the net cost of the new equipment? (round 2 decimal places)
252702 - Correct
B. What is the present value of incremental benefits? (round 2 decimal places)
C. What is the NPV of this replacement decision? (round 2 decimal places)
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