Last year Deiters Aluminum purchased a new press machine used in manufacturing for $308,000. At a...

Last year Deiters Aluminum purchased a new press machine used in manufacturing for $308,000. At a trade show the VP of Manufacturing learned about a new machine that is available that offers many advantages and can be purchased for $440,000 today. The new press machine would be depreciated on a straight line basis for 10 years after which it would have no salvage value. The VP of Manufacturing expects that the new machine will produce EBITDA (earnings before interest, taxes, depreciation and amortization) of $75,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $49,000 per year. The current machine is being depreciated on a straight line basis over a useful life of 11 years after which it will have no salvage value; so the depreciation expense for the current machine is $28,000 per year. All other expenses of the two machines are identical. The market value of the current machine is $250,000. Your company's tax rate is 21% and the cost of capital is 12%. Calculate the NPV of the replacement decision and choose the best answer below.

Expert Solution

jeff jeffy answered 2 years ago

One year ago, your company purchased a machine used in manufacturing for $ 95 000 ....

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; you can purchase it for $ 140000 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 $ 50 000 per year for the next...

One year ago, your company purchased a machine used in manufacturing for $ 115,000 . You...

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 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 $ 35,000 per year for the next 10...

One year ago, your company purchased a machine used in manufacturing for $ 105,000 . You...

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; you can purchase it for $ 140,000 today. It will be depreciated on a straigt-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 $60,000 per year for the next ten years. The...

One year ago, your company purchased a machine used in manufacturing for $ 90 comma 000....

One year ago, your company purchased a machine used in manufacturing for $ 90 comma 000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $ 170 comma 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 $ 45 comma 000...

One year ago, your company purchased a machine used in manufacturing for $ 120 comma 000....

One year ago, your company purchased a machine used in manufacturing for $ 120 comma 000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $ 160 comma 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 $ 40 comma 000...

One year? ago, your company purchased a machine used in manufacturing for $ 120, 000. You...

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 $ 170, 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 $ 50, 000 per year for the next...

One year ago, your company purchased a machine used in manufacturing for $ 115,000. You have...

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 $ 160,000 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 $ 45,000 per year for the next 10...

One year ago, your company purchased a machine used in manufacturing for $ 110,000. You have...

One year ago, your company purchased a machine used in manufacturing for $ 110,000. 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 $ 55,000 per year for the next ten years. The...

One year ago, your company purchased a machine used in manufacturing for $ 110 comma 000....

One year ago, your company purchased a machine used in manufacturing for $ 110 comma 000. You have learned that a new machine is available that offers many advantages and you can purchase it for $ 150 comma 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 comma 000 per...

One year ago, your company purchased a machine used in manufacturing for $ 115,000 You have...

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 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 $ 50,000 per year for the next 10 years....

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