Question
Your firm purchased the current machine it uses to manufacture widgets 4 years ago. The machine cost $615,000 at that time. Today the machine is
Your firm purchased the current machine it uses to manufacture widgets 4 years ago. The machine cost $615,000 at that time. Today the machine is worth $208,000. The machine could be operated for another 6 years. 6 years from now the old machine will be worth $60,000. The old machine machine generates revenues of $685,000 per year. The old machine has operating costs of $418,000 per year. The firm has a current investment in operating net working capital of $50,000.
The firm is thinking about buying a new machine to replace the old machine. The new machine will cost $1,104,000. The new machine can be operated of 6 years. 6 years from now the new machine will have a salvage value of $177,000. The new machine will generate revenues of $940,000 per year. The new machine will have operating costs of $470,000. The new machine requires an investment in operating net working capital of $104,000.
The tax rate is 41.5%. The CCA rate is 36%. The required rate of return is 9.6%.
What is the present value of the incremental salvage value?
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