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One year​ ago, your company purchased a machine used in manufacturing for $110,000. You have learned...

One year​ ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $155,000 today. It will be depreciated on a​ straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin​ (revenues minus operating expenses other than​ depreciation) of $60000 per year for the next 10 years. The current machine is expected to produce a gross margin of $21000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, and has no salvage​ value, so depreciation expense for the current machine is $10000 per year. The market value today of the current machine is $60000. Your​ company's tax rate is 40%​, and the opportunity cost of capital for this type of equipment is 12 % . Should your company replace its​ year-old machine? The NPV of replacing the year old machine is?

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jeff jeffy answered 2 years ago
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