Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

there is no excel data, and for bigger image you can right click and choose open in new tab One year ago, your company purchased

there is no excel data, and for bigger image you can right click and choose open in new tabimage text in transcribed

One year ago, your company purchased a machine used in manufacturing for $90,000. You have learned that a new machine is available that offers many advantages, you can purchase it for $170,000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $50,000 per year for the next ten years. The current machine is expected to produce EBITDA of $24,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $8,182 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 40%, and the opportunity cost of capital for this type of equipment is 10%. Is it profitable to replace the year-old machine? The NPV of the replacement is $ (Round to the nearest dollar.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

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

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

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

Get Started

Students also viewed these Finance questions