The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation range(ADR) midpoint of 8 years. The old equipment can be sold for $90,000. A new piece of equipment can be purchased for$320,000. It also has an ADR of 8 years. Assume the old and new equipment would provide the following operating gains (or losses) over the next 6 years.

Year New Equipment Old Equipment

1 $80,000 $25,000

2 76,000 16,000

3 70,000 9,000

4 60,000 8,000

5 50,000 6,0000

6 45,000 (7,000)

The firm has a 25 percent tax rate and a 9 percent cost of capital. Should the new equipment be purchased to replace the old equipment?

Solutions

Expert Solution

The new equipment should not be purchased and replaced with the old equipment as the NPV after the purchase of new equipment will be negative .

Please find the attached screenshot for complete answer.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $85,500. A new piece of equipment can be purchased for $322,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Year New Equipment Old Equipment 1............... $78,750 $23,000 2............... 77,500...

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $90,000. A new piece of equipment can be purchased for $320,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years. Question: The firm has a 25 percent tax rate and a...

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $90,000. A new piece of equipment can be purchased for $320,000. It also has an ADR of eight years. Ye New Equipment Old Equipment Year 1 $80,000 $25,000 1 2 76,000 16,000 2 3 70,000 9,000 3 4 60,000 8,000 4 5 50,000 6,000 5 6 45,000 (7,000) 6...

The Woodruff Corporation purchased a piece of equipment three years ago for $233,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $233,000. It has an asset depreciation range(ADR) midpoint of 8 years. The old equipment can be sold for $94000. A new piece of equipment can be purchased for $335,500. It also has an ADR of 8 years. Assume the old and new equipment would provide the following operating gains(or losses) over the next six years: Year New Equipment Old Equipment 1 $78,750 $26,000 2 $76,250 $14,500 3 $68,250...

The Woodruff Corporation purchased a piece of equipment three years ago for $245,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $245,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $87,750. A new piece of equipment can be purchased for $336,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years. New Equipment Old Equipment $78,250 $24,000 $74,750 $17,000 $70,000 $8,000 $60,750...

The Woodruff Corporation purchased a piece of equipment three years ago for $248,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $248,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $93,250. A new piece of equipment can be purchased for $324,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Year New Equipment Old Equipment 1............... $81,500 $24,000 2............... 76,000...

The Woodruff Corporation purchased a piece of equipment three years ago for $238,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $238,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $85,250. A new piece of equipment can be purchased for $340,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Year New Equipment Old Equipment 1............... $78,250 $25,500 2............... 75,000...

The Woodruff Corporation purchased a piece of equipment three years ago for $229,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $229,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $86,000. A new piece of equipment can be purchased for $315,500. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Year New Equipment Old Equipment 1............... $82,000 $24,250 2............... 75,750...

The Woodruff Corporation purchased a piece of equipment three years ago for $221,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $221,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $92,250. A new piece of equipment can be purchased for $334,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Year New Equipment Old Equipment 1............... $81,000 $23,500 2............... 75,000...

The Woodruff Corporation purchased a piece of equipment three years ago for $240,000. It has an...

The Woodruff Corporation purchased a piece of equipment three years ago for $240,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $89,000. A new piece of equipment can be purchased for $320,500. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Year New Equipment Old Equipment 1............... $81,250 $27,000 2............... 77,500...

Subjects