Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The WuShock Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a

image text in transcribed

The WuShock Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 5 years. The proposed replacement machine will perform the operation so much more efficiently that WuShocks engineers estimate that it will produce an increase in after-tax cash flows (labor savings and depreciation) of $6000 per year, and will not have an effect on net working capital. The new machine will cost $25,000 delivered and installed, and its economic and depreciation life is estimated to be 5 years. It has zero salvage value. The firm's WACC is 8%, and its marginal tax rate is 15% What is the NPV of this replacement project? Round your answer to full dollars. a. $20,363 O b. - $1,044 O c. $23,956 O d. - $4,637

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Audit Management And Supervision Wiley Ronald Institute Of Internal Auditors Professional Book Series

Authors: Gil W. Courtemanch, Guilbert W. Courtemanche

1st Edition

0471625655, 978-0471625650

More Books

Students also viewed these Accounting questions

Question

Distinguish between poor and good positive and neutral messages.

Answered: 1 week ago

Question

Describe the four specific guidelines for using the direct plan.

Answered: 1 week ago