Question
In: Finance
The G. Rod Electronic Components Corporation is considering replacing a 10-year old machine that originally cost...
The G. Rod Electronic Components Corporation is considering replacing a 10-year old machine that originally cost $37,500, has a current book value of $12,500 with five years of life left, and is being depreciated using the straight line method over its 15 year life with zero salvage value. The replacement machine being considered would cost $100,000 and have a five year expected life over which it would be depreciated using MACRS of 5 year. At the termination of 5 years the new machine is expected to have a salvage value of 35,000. Material efficiencies resulting from the replacement would result in savings of $30,000 per year before tax and depreciation. Currently the old machine could be sold for $17,000. Assume a 34 percent marginal tax rate and required rate of return of 15 percent.
a. Find the NPV of the replacement project.
b. Find the IRR of the replacement project.
Solutions
jeff jeffy answered 6 months agoRelated Solutions
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You are is considering replacing a five-year-old machine that
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original 10-year life and could now be sold for $40,000. The
replacement machine would cost $190,000 and have a five-year
expected life. It would be depreciated using the MACRS 5-year class
life. The actual expected salvage value of this machine after five
years is $20,000. The new machine is expected to operate much...
You are is considering replacing a five-year-old machine that originally cost $50,000. It was being depreciated...
You are is considering replacing a five-year-old machine that
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straight-line to an expected salvage value of zero over its
original 10-year life and could now be sold for $40,000. The
replacement machine would cost $190,000 and have a five-year
expected life. It would be depreciated using the MACRS 5-year class
life. The actual expected salvage value of this machine after five
years is $20,000. The new machine is expected to operate much...
You are considering replacing a five-year-old machine that originally cost $50,000. It was being depreciated using...
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straight-line to an expected salvage value of zero over its
original 10-year life and could now be sold for $40,000. The
replacement machine would cost $190,000 and have a five-year
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life. The actual expected salvage value of this machine after five
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