Question
You are the financial manager for a medium-sized company and you are currently facing the following asset replacement decision. Your comany is considering replacing its
You are the financial manager for a medium-sized company and you are currently facing the following asset replacement decision. Your comany is considering replacing its old machinery with a new machine that will cost $250 000 with a useful life of 15 years. In 15 years this new machine can be sold for $5000. The new machine will increse before-tax operating income by $50 000 per year. Both old and new machines belong to CCA class 9 with a rate of 25% your comany's tax rate is 43.5% and its required return on this kind of investment is 15%.
Should you recommend that the old machinge be replaced? in making your decision, you will be assuming that the asset class will remain open at the end year 15. ( since we are using the CCA to depreciate your equipment, the half-year rule applies
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