Question
In: Finance
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, obsolete, and has no...
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, obsolete, and has no salvage value. However, even though it is obsolete, it is perfectly functional as originally designed and can be used for quite a while longer. A new welder will cost $182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $27,000 to $74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the firm's WACC is 12%. Should the old welder be replaced by the new one?
Solutions
Expert Solution
Increase in EBITDA = $74,000 - $27,000
= $47,000
NPV of new welder machine is calculated in excel and screen shot provided below:
NPV of new Welder is $11,820.87 and IRR is 14.03%.
Since, NPV of new Welder is a positive value and IRR is more than WACC. So project should be accepted.
jeff jeffy answered 2 years agoRelated Solutions
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has no salvage...
St. Johns River Shipyard's welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $81,500 and
have an estimated life of 8 years with no salvage value. The new
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to $52,000 per...
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has no salvage...
St. Johns River Shipyard's welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $83,500 and
have an estimated life of 8 years with no salvage value. The new
welder will be much more efficient, however, and this enhanced
efficiency will increase earnings before depreciation from $29,000
to $58,000 per...
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has no salvage...
St. Johns River Shipyard's welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. A new welder will cost $182,500 and
have an estimated life of 8 years with no salvage value. The new
welder will be much more efficient, however, and this enhanced
efficiency will increase earnings before depreciation from $27,000
to $74,000 per...
St. Johns River Shipyards's welding machine is 15 years old, fully depreciated, obsolete, and has no...
St. Johns River Shipyards's welding machine is 15 years old,
fully depreciated, obsolete, and has no salvage value. However,
even though it is old, it is still functional as originally
designed and can be used for quite a while longer. A new welder
will cost $182,500, and have an estimated life of 8 years with no
salvage value. The new welder will be much more efficient, however,
and this enhanced efficiency will increase earnings before
depreciation from $27,000 to $74,000...
St. Johns River Shipyards's welding machine is 15 years old, fully depreciated, obsolete, and has no...
St. Johns River Shipyards's welding machine is 15 years old,
fully depreciated, obsolete, and has no salvage value. However,
even though it is obsolete, it is perfectly functional as
originally designed and can be used for quite a while longer. The
new welder will cost $182,500 and have an estimated life of 8 years
with no salvage value. The new welder will be much more efficient,
however, and this enhanced efficiency will increase earnings before
depreciation from $27,000 to $74,000...
Replacement Analysis St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has...
Replacement Analysis
St. Johns River Shipyard's welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $82,000 and
have an estimated life of 8 years with no salvage value. The new
welder will be much more efficient, however, and this enhanced
efficiency will increase earnings before depreciation from $29,000
to...
Replacement Analysis St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has...
Replacement Analysis St. Johns River Shipyard's welding machine
is 15 years old, fully depreciated, and has no salvage value.
However, even though it is old, it is still functional as
originally designed and can be used for quite a while longer. The
new welder will cost $84,500 and have an estimated life of 8 years
with no salvage value. The new welder will be much more efficient,
however, and this enhanced efficiency will increase earnings before
depreciation from $29,000 to...
St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage...
St. Johns River Shipyards' welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $184,500
and have an estimated life of 8 years with no salvage value. The
new welder will be much more efficient, however, and this enhanced
efficiency will increase earnings before depreciation from $29,000
to $83,000 per...
St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage...
St. Johns River Shipyards' welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $182,000
and have an estimated life of 8 years with no salvage value. The
new welder will be much more efficient, however, and this enhanced
efficiency will increase earnings before depreciation from $28,000
to $69,500 per...
St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage...
St. Johns River Shipyards' welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $184,000
and have an estimated life of 8 years with no salvage value. The
new welder will be much more efficient, however, and this enhanced
efficiency will increase earnings before depreciation from $28,000
to $70,500 per...
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