Question

One year? ago, your company purchased a machine used in manufacturing for $115,000. You have learned...

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 and you can purchase it for $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 $45,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $21,000 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 $10,455per year. The market value today of the current machine is $45,000. Your? company's tax rate is 42%?, and the opportunity cost of capital for this type of equipment is 12%.

Should your company replace its? year-old machine?

The NPV of replacing the? year-old machine is ?$______. ?(Round to the nearest? dollar.)

Should your company replace its? year-old machine????(Select the best choice? below.)

A. No comma there is a loss from replacing the machine.No, there is a loss from replacing the machine.

B. Yes comma there is a profit from replacing the machine.

Homework Answers

Answer #1
Incremental After tax Gross margin (45000-21000)(1-42%) 13920
Ttax sheild on additional depreciation(16500-10455)*42% 2,539
Total Annual cash inflows for 10 years 16,459
Annuity for 10 years at 12% 5.6502
Present value of Annual cash inflows 92,996
Less: Net initial investment
Cost of machine 165000
Less: Salvage value of curent machine 45,000
Less: tax sheild on loss on current machine 25011
(10455*10 - 45000)*42%
Net Initial cash outflows 94989
Net present value -1,993
NPV of replacing the machine is ($ 1993)
Option is:
A. there is a loss on replacing the machine.
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
One year? ago, your company purchased a machine used in manufacturing for $100,000. You have learned...
One year? ago, your company purchased a machine used in manufacturing for $100,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $150,000 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 $45,000 per year for the next 10 years. The current machine...
One year​ ago, your company purchased a machine used in manufacturing for $ 110,000. You have...
One year​ ago, your company purchased a machine used in manufacturing for $ 110,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $ 170,000 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 $ 60,000 per year for the next 10 years....
One year​ ago, your company purchased a machine used in manufacturing for $110,000. You have learned...
One year​ ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $160,000 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 $45,000 per year for the next 10 years. The current machine...
One year​ ago, your company purchased a machine used in manufacturing for $115,000. You have learned...
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 can purchase it for $140,000 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 $60,000 per year for the next ten years. The current machine is...
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 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 $90,000. You have learned...
One year​ ago, your company purchased a machine used in manufacturing for $90,000. You have learned that a new machine is available that offers many​ advantages; you can purchase it $150,000 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 $45,000 per year for the next ten years. The current machine is expected...
One year? ago, your company purchased a machine used in manufacturing for $95,000. You have learned...
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 $160,000 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 $60,000 per year for the next ten years. The current machine is...
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; you can purchase it for $ 140 comma 000 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 $ 35 comma 000 per year...
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; you can purchase it for $ 150 comma 000$150,000 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 $ 60 comma 000$60,000 per year...
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned...
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 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 $35,000 per year for the next ten years. The current machine...