Question

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,270,000; the new one will cost $1,530,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $270,000 after five years. The old computer is being depreciated at a rate of $254,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $390,000; in two years, it will probably be worth $117,000. The new machine will save us $287,000 per year in operating costs. The tax rate is 23 percent and the discount rate is 11 percent. a. Calculate the EAC for the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer #1

Suppose we are thinking about replacing an old computer with a
new one. The old one cost us $650,000;the new one will cost
$780,000. The new machine will be depreciated straight-line to zero
over its five-year life. It will probably be worth about $140,000
after five years. The old computer is beingdepreciated at a rate of
$130,000 per year. It will be completely written off in three
years. If we don'treplace it now, we will have to replace it in...

Suppose we are thinking about replacing a series of old computer
systems with new computers. The old ones cost us $420,000 one year
ago and is depreciated at a rate of $140,000 a year and will be
completely written off in 3 years.It can be sold for $190,000 now
or sold for $80,000 in two years. The new machine will cost
$368,000 a year and will be depreciated at a rate of 10% a year. It
is expected to be...

Suppose we are thinking about replacing a series of old
computer systems with new computers. The old ones cost us $420,000
one year ago and is depreciated at a rate of $140,000 a year and
will be completely written off in 3 years.It can be sold for
$190,000 now or sold for $80,000 in two years.
The new machine will cost $368,000 a
year and will be depreciated at a rate of 10% a year. It is
expected to be...

A firm is considering an investment in a new machine with a
price of $16.1 million to replace its existing machine. The current
machine has a book value of $5.8 million and a market value of $4.5
million. The new machine is expected to have a 4-year life, and the
old machine has four years left in which it can be used. If the
firm replaces the old machine with the new machine, it expects to
save $6.5 million in...

Your firm is contemplating the purchase of a new $525,000
computer-based order entry system. The system will be depreciated
straight-line to zero over its five-year life. It will be worth
$59,000 at the end of that time. You will be able to reduce working
capital by $84,000 (this is a one-time reduction). The tax rate is
23 percent and the required return on the project is 11
percent.
a)If the pretax cost savings are $150,000 per year, what is the...

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Question: A new computer system will require an initial outlay of
$17,500, but it will increase the firm’s ... A new computer system
will require an initial outlay of $17,500, but it...

Your firm is contemplating the purchase of a new $480,000
computer-based order entry system. The system will be depreciated
straight-line to zero over its five-year life. It will be worth
$30,000 at the end of that time. You will be able to reduce working
capital by $35,000 at the beginning of the project. Working capital
will revert back to normal at the end of the project. Assume the
tax rate is 35 percent. Requirement 1: Suppose your required return
on...

Your firm is contemplating the purchase of a new $794,500
computer-based order entry system. The system will be depreciated
straight-line to zero over its seven-year life. It will be worth
$59,000 at the end of that time. You will be able to reduce working
capital by $54,000 at the beginning of the project. Working capital
will revert back to normal at the end of the project. Assume the
tax rate is 30 percent.
Suppose your required return on the project...

A new computer system will require an initial outlay of $16,000,
but it will increase the firm’s cash flows by $3,200 a year for
each of the next 8 years.
a. Calculate the NPV and decide if the system
is worth installing if the required rate of return is 9%.
(Negative amount should be indicated by a minus sign. Do
not round intermediate calculations. Round your answers to 2
decimal places.) Worth installing?
b. Calculate the NPV and decide if...

Applied Nanotech is thinking about introducing a new surface
cleaning machine. The marketing department has come up with the
estimate that Applied Nanotech can sell 15 units per year at
$314,000 net cash flow per unit for the next five years. The
engineering department has come up with the estimate that
developing the machine will take a $15.8 million initial
investment. The finance department has estimated that a discount
rate of 15 percent should be used.
a.
What is the...

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