In: Accounting
The new machine will cost $368,000 a year and will be depreciated at a rate of 10% a year. It is expected to be worth $198,000 after five years. The new machine will save $130,000 in maintenance costs per year. The tax rate is 38% and the discount rate is 13%.
Should we replace the computer now or should we replace the computer in two years or should we not replace the computer at all? What are the relevant cash flows? Explain without using excel, please.