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

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 $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 $35,000 per year for the next ten years. The current machine is expected to produce EBITDA of $21,000 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 depreciation expense for the current machine is $9,545 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 42%​, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the​ year-old machine? Round answer to nearest dollar

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jeff jeffy answered 1 year ago
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