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(Time allowance: 10 minutes) The question in this problem is only for the replace in 1 year decision. This is a partial question exam created
(Time allowance: 10 minutes) The question in this problem is only for the replace in 1 year decision. This is a partial question exam created to give credit for partial work (individual steps in a problem). You are facing the decision of whether to replace an old machine at your factory. A new machine will cost $26 to purchase it now and the yearly maintenance expenses will be $6 a year. The new machine has a life of 5 years at which time it is estimated it can be sold for $12. The new machine will be depreciated down to zer over 5 years using straight-line depreciation. If the new machine is purchased, the old machine can be sold today for $15. However, if the old machine is not replaced today, it will continue to be depreciated down to zero using straight-line method over its remaining 4 years. The book value of the old machine today is $7. It is estimated that the old machine can be sold for $5 in one year (at the end year 1). The maintenance cost per year for the old machine will be $9. Assume that the discount rate is 8% and the tax rate is 20%
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