Question

**Replacement Analysis**

Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $114,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,800 per year. It would have zero salvage value at the end of its life. The Project cost of capital is 10%, and its marginal tax rate is 35%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.

NPV: $

Chen -Select-shouldshouldn'tItem 2 purchase the new machine.

Answer #1

NPV=PV of Inflows -Initial Outflow

The Outflow here =$114,000

The cash flows =18,800 per year for 10 years

The PVIF for 10 years at 10% can be determined using the formula(1-(1+r)^-n)/r

r is the discount rate here 10% n is the number of years here 10

So (1-(1+.1)^-10)/.10=6.144567106

So the PV of cash flows =18,800*6.144567106=$115,517.8616

So **NPV**=$115,517.8616-$114,000=$1,517.8616
that's **$1,517.86**(rounded to the nearest cent)

**Yes Chen Should purchase the new machine** as the
NPV is positive, this implies that it would add value to the
firm.

Replacement Analysis Although the Chen Company's milling machine
is old, it is still in relatively good working order and would last
for another 10 years. It is inefficient compared to modern
standards, though, and so the company is considering replacing it.
The new milling machine, at a cost of $106,000 delivered and
installed, would also last for 10 years and would produce after-tax
cash flows (labor savings and depreciation tax savings) of $18,200
per year. It would have zero salvage...

Replacement Analysis
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $118,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $19,300 per year. It would
have zero salvage...

Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $114,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $18,100 per year. It would
have zero salvage value at...

Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $40,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,100 per year. It would
have zero salvage value at...

Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $40,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $9,000 per year. It would
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so the company is considering replacing it. The new milling
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last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,300 per year. It would
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Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
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last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,800 per year. It would
have zero salvage value at...

Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
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Please show excel steps.
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $42,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,400 per year. It would
have...

FIN 650 - Problem 11-04 (Replacement
Analysis)
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $102,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $18,400 per year....

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