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

Expert Solution


Related 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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT