One year ago, your company purchased a machine used in manufacturing for $115,000.You have learned that a new machine is available that offers many advantages; you canpurchase it for $150,000 today. It will be depreciated on a straight-line basis over 10 years,after which it has no salvage value. You expect that the new machine will contributeEBITDA (earnings before interest, taxes, depreciation, and amortization) of $45,000 peryear for the next 10 years. The current machine is expected to produce EBITDA of$20,000 per year. The current machine is being depreciated on a straight-line basis over auseful life of 11 years, after which it will have no salvage value, so depreciation expense forthe current machine is $10,455 per year. All other expenses of the two machines areidentical. The market value today of the current machine is $50,000. Your company's taxrate is 45%, and the opportunity cost of capital for this type of equipment is 11%. Is itprofitable to replace the year-old machine?The NPV of the replacement is $. (Round to the nearest cent.)

Name: One year ago, your company purchased a machine used in manufacturing
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Description: One year ago, your company purchased a machine used in manufacturing for $115,000.You have learned that a new machine is available that offers many advantages; you canpurchase it for $150,000 today. It will be depreciated on a straight-line basis ov

NPV of replacement can be found as the difference between the present value of additional cash flow…

Business

Finance

One year ago, your company purchased a machine used in manufacturing for $ You have learned that a new machine is available that offers many advantages; purchase it for $150,000 today. It will be depreciated on a straight-line basis ove after which it has no salvage value. You expect that the new machine will contril EBITDA (earnings before interest, taxes, depreciation, and amortization) of $45 year for the next 10 years. The current machine is expected to produce EBITDA $20,000 per year. The current machine is being depreciated on a straight-line ba useful life of 11 years, after which it will have no salvage value, so depreciation the current machine is $10,455 per year. All other expenses of the two machine. identical. The market value today of the current machine is $50,000. Your comp rate is 45%, and the opportunity cost of capital for this type of equipment is 11% profitable to replace the year-old machine?

One year ago, your company purchased a machine used in manufacturing for $ You have learned that a new machine is available that offers many advantages; purchase it for $150,000 today. It will be depreciated on a straight-line basis ove after which it has no salvage value. You expect that the new machine will contril EBITDA (earnings before interest, taxes, depreciation, and amortization) of $45 year for the next 10 years. The current machine is expected to produce EBITDA $20,000 per year. The current machine is being depreciated on a straight-line ba useful life of 11 years, after which it will have no salvage value, so depreciation the current machine is $10,455 per year. All other expenses of the two machine. identical. The market value today of the current machine is $50,000. Your comp rate is 45%, and the opportunity cost of capital for this type of equipment is 11% profitable to replace the year-old machine?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
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