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Two years ago, Sun company purchased a machine for $120,000. The company has learned that a...

Two years ago, Sun company purchased a machine for $120,000. The company has learned that a new machine is available for $145,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. Sun Company expects that the new machine will produce earnings of $45,000 per year for the next 10 years. The old machine is expected to produce earnings of $25,000 per year. The old machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value. The market value today of the old machine is $65,000. Sun Company's tax rate is 40%, and the cost of capital for this type of equipment is 10%. What is the NPV of replacing the old machine?

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jeff jeffy answered 1 year ago
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