er Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $20,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $53,000. The firm will depreciate the machine under MACRS using a 5-year recovery Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9%
er Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $20,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $53,000. The firm will depreciate the machine under MACRS using a 5-year recovery Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9%
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
Related questions
Question
Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $20,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $53,000. The firm will
Percentage by recovery year*
|
||||
Recovery year
|
3 years
|
5 years
|
7 years
|
10 years
|
1
|
33%
|
20%
|
14%
|
10%
|
2
|
45%
|
32%
|
25%
|
18%
|
3
|
15%
|
19%
|
18%
|
14%
|
4
|
7%
|
12%
|
12%
|
12%
|
5
|
|
12%
|
9%
|
9%
|
6
|
|
5%
|
9%
|
8%
|
7
|
|
|
9%
|
7%
|
8
|
|
|
4%
|
6%
|
9
|
|
|
|
6%
|
10
|
|
|
|
6%
|
11
|
|
|
|
4%
|
Totals
|
100%
|
100%
|
100%
|
100%
|
and is subject to a 40%\ tax rate. Estimate the incremental operating
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