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?
Solutions
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 $ 120,000. You have...
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 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 $ 55,000 per
year for the next ten years. The...
One year ago, your company purchased a machine used in manufacturing for $ 120,000. You have...
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 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 $ 55,000 per
year for the next ten years. The...
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...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 5. You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella...
- JAVA Write a test program that prompts the user to enter a series of integers and...
- (2) Cite an example on how organizations like Google, Facebook, Youtube etc collect data for image...
- The legal landscape is perpetually changing. Psychologists must remain abreast of these changes to avoid potentially...
- We are evaluating a project that costs $1.68 million, has a six-year life, and has no...
- In C++ Having call-by-reference allows one to use storeback parameters, i.e., parameters whose values are transmitted...
- You must evaluate a proposal to buy a new milling machine. The base price is $175,000,...
ADVERTISEMENT