Question

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.

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. | |||||||

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 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 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 $ 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 $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 $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 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. 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. 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 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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 18 minutes ago

asked 18 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 3 hours ago

asked 3 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago

asked 5 hours ago

asked 5 hours ago