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You are trying to decide whether to replace a machine on your production line. The new machine will cost $1 Million, but will be more
You are trying to decide whether to replace a machine on your production line. The new machine will cost $1 Million, but will be more efficient than the old machine, reducing costs by $500,000 per year. Your old machine is fully depreciated, but you could sell it for $50,000. You would depreciate the new machine over a 3 year life using MACRS, the new machine will not change your working capital needs. Your tax rate is 35%, and your cost capital is 9% (Note: the depreciation rare of 3 year life for MACRS: 33.33, 44.45, 14.81, 7.41)A) What is the salvage value of thw old machine? B) What are are thw incremental cash flows for the replacement? (Please construct a table to show the calculation) C) Should you replace the machine?
A) What is the salvage value of thw old machine?
B) What are are thw incremental cash flows for the replacement? (Please construct a table to show the calculation)
C) Should you replace the machine?
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