Question
In: Finance
One year ago, your company purchased a machine used in manufacturing for $ 95 comma 000....
One year ago, your company purchased a machine used in manufacturing for $ 95 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 $ 45 comma 000 per year for the next 10 years. The current machine is expected to produce a gross margin of $ 21 comma 000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $ 8 comma 636 per year. The market value today of the current machine is $ 50 comma 000. Your company's tax rate is 40 %, and the opportunity cost of capital for this type of equipment is 11 %. Should your company replace its year-old machine? The NPV of replacing the year-old machine is $ nothing. (Round to the nearest dollar.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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 $ 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 $ 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 $ 100 comma 000....
One year ago, your company purchased a machine used in
manufacturing for $ 100 comma 000. You have learned that a new
machine is available that offers many advantages and that you can
purchase it for $ 150 comma 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 comma 000...
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 comma 000....
One year ago, your company purchased a machine used in
manufacturing for $ 115 comma 000. You have learned that a new
machine is available that offers many advantages and you can
purchase it for $ 145 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 $ 50 comma
000 per...
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 $ 140 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 $ 55 comma
000 per...
One year ago, your company purchased a machine used in manufacturing for $ 110 comma 000$110,000....
One year ago, your company purchased a machine used in
manufacturing for
$ 110 comma 000$110,000.
You have learned that a new machine is available that offers
many advantages and you can purchase it for
$ 165 comma 000$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 comma 000$45,000
per...
One year ago, your company purchased a machine used in manufacturing for $ 105 comma 000$105,000....
One year ago, your company purchased a machine used in
manufacturing for
$ 105 comma 000$105,000.
You have learned that a new machine is available that offers
many advantages and you can purchase it for
$ 145 comma 000$145,000
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
$ 60 comma 000$60,000
per...
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