Question
In: Finance
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned...
- One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $200,000 today. It will be depreciated on a straight-line basis over 5 years, after which it has no salvage value. You expect that the new machine will produce EBITDA (earnings before interest, taxes, depreciation, and amortization) of $100,000 per year for the next 5 years. The current machine is expected to produce EBITDA of $45,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 6 years, after which it will have no salvage value, so depreciation expense for the current machine is $20,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $80,000. Your company’s tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the year-old machine?
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Expert Solution
As the NPV of replacement is positive it is recommended to purchase new equipment
Please dont forget to upvote
jeff jeffy answered 2 years agoRelated Solutions
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $120,000. You have learned that a new machine is
available that offers many advantages; you can purchase it for
$160,000 today. It will be depreciated on a straight-line basis
over ten years, after which it has no salvage value. You expect
that the new machine will contribute EBITDA (earnings before
interest, taxes, depreciation, and amortization) of $40,000 per
year for the next ten years. The current machine is...
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $120,000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for $150,000 today. The CCA rate applicable to both machines is
20%; neither machine will have any long-term salvage value. You
expect that the new machine will produce earnings before interest,
taxes, depreciation, and amortization (EBITDA) of $60,000 per
year for the next 10 years. The current machine...
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for
$120,000.
You have learned that a new machine is available that offers
many advantages and you can purchase it for
$160,000
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
$35,000
per year for the next 10 years. The current machine...
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $120,000. You have learned that a new machine is
available that offers many advantages; you can purchase it for
$140,000 today. It will be depreciated on a straight-line basis
over 10 years, after which it has no salvage value. You expect that
the new machine will produce EBITDA (earning before interest,
taxes, depreciation, and amortization) of $40,000 per year for the
next 10 years. The current machine is...
One year ago, your company purchased a machine used in manufacturing for$105,000.You have learned that a...
One year ago, your company purchased a machine used in
manufacturing for$105,000.You have learned that a new machine is
available that offers many advantages and you can purchase it
for$140,000today. 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$35,000per year for the next
10 years. The current machine is expected to produce a gross...
One year ago, your company purchased a machine used in manufacturing for $90,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $90,000. You have learned that a new machine is
available that offers many advantages; you can purchase it for
$150,000 today. It will be depreciated on a straight-line basis
over ten years, after which it has no salvage value. You expect
that the new machine will contribute EBITDA (earnings before
interest, taxes, depreciation, and amortization) of $40,000 per
year for the next ten years. The current machine is...
One year? ago, your company purchased a machine used in manufacturing for $115,000. You have learned...
One year? ago, your company purchased a machine used in
manufacturing for $115,000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for $150,000 today. The CCA rate applicable to both machines is
20%?; neither machine will have any? long-term salvage value. You
expect that the new machine will produce earnings before? interest,
taxes,? depreciation, and amortization ?(EBITDA?) of $50,000 per
year for the next ten years. The current machine...
One year? ago, your company purchased a machine used in manufacturing for $90,000. You have learned...
One year? ago, your company purchased a machine used in
manufacturing for $90,000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for $150,000 today. The CCA rate applicable to both
machines is 30%?; neither machine will have any? long-term salvage
value. You expect that the new machine will produce earnings
before? interest, taxes,? depreciation, and amortization (EBITDA)
of $60,000 per year for the next ten years. The current machine...
One year? ago, your company purchased a machine used in manufacturing for $105,000. You have learned...
One year? ago, your company purchased a machine used in
manufacturing for $105,000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for $160,000 today. The CCA rate applicable to both
machines is 20%?; neither machine will have any? long-term salvage
value. You expect that the new machine will produce earnings
before? interest, taxes,? depreciation, and amortization
(EBITDA?) of $50,000 per year for the next ten years. The
current machine...
One year ago, your company purchased a machine used in manufacturing for 100000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for 100000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for 170000 today. The CCA rate applicable to both machines is 40%;
neither machine will have any long-term salvage value. You expect
that the new machine will produce earnings before interest,
taxes, depreciation, and amortization (EBITDA) of 55000 per year
for the next ten years. The current machine...
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