Question
Western Manufacturing is considering replacing an old lathe with a new automated lathe. The new lathe costs $150,000, which includes installation. The old lathe can
Western Manufacturing is considering replacing an old lathe with a new automated lathe. The new lathe costs $150,000, which includes installation. The old lathe can be sold for $27,000. Its book value is $20,000.
The new lathe, because of greater capacity and being more energy efficient, will reduce costs for the company by $35,000 per year for 8 years. The new lathe will be depreciated using the straight-line method over 5 years at $30,000 per year.
At the end of year 8, the new lathe will be scrapped for $15,000. If the companys tax rate is 35%, and the appropriate discount rate for this project is 12%, the projects NPV is
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