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St. Johns River Shipyard’s welding machine is 15 years old, fully depreci- ated, and has no...

St. Johns River Shipyard’s welding machine is 15 years old, fully depreci- ated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost $182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $27,000 to $74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable cor- porate tax rate is 40%, and the project cost of capital is 12%. Should the old welder be replaced by the new one?

textbook answer: NPV: 11,468.48

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 11 months ago
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