Question
In: Finance
One year? ago, your company purchased a machine used in manufacturing for $95,000. You have learned...
One year? ago, your company purchased a machine used in manufacturing for $95,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $170,000 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 $50,000 per year for the next ten years. The current machine is expected to produce EBITDA of $23,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your? company's tax rate is 45%?, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its? year-old machine?
A) What is the NPV of? replacement? ??
?(Round to the nearest? dollar.)
B) Should your company replace its? year-old machine?
a)Yes, there is a profit from replacing the machine.
b) No, there is a loss from replacing the machine.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
One year? ago, your company purchased a machine used in manufacturing for $95,000. You have learned...
One year? ago, your company purchased a machine used in
manufacturing for $95,000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for $140,000 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 $40,000 per year for the next ten years. The
current machine...
One year ago, your company purchased a machine used in manufacturing for $95,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $95,000. 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 $40,000 per
year for the next 10 years. The current...
One year ago, your company purchased a machine used in manufacturing for $95,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $95,000. You have learned that a new machine is
available that offers many advantages and you can purchase it for
$165,000 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 $40,000 per year for the next
10 years. The current machine...
One year ago, your company purchased a machine used in manufacturing for $95,000. You have learned...
One year ago, your company purchased a machine used in
manufacturing for $95,000.
You have learned that a new machine is available that offers
many advantages and you can purchase it for $165,000
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 $45,000
per year for the next 10 years. The current machine...
One year ago, your company purchased a machine used in manufacturing for $95,000.You have learned that...
One year ago, your company purchased a machine used in
manufacturing for $95,000.You have learned that a new machine is
available that offers many advantages and you can purchase it for
$170,000 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 $50,000 per year for the next
10 years. The current machine is...
One year ago, your company purchased a machine used in manufacturing for $95,000.You have learned that...
One year ago, your company purchased a machine used in
manufacturing for $95,000.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 $55,000 per
year for the next ten years. The current machine is expected...
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 $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 $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...
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