17. 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 $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 $40,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $20,000 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 $10,000 per year. The market value today of the current machine is $50,000. Your company's tax rate is 25%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? Excel
17. 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 $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 $40,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $20,000 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 $10,000 per year. The market value today of the current machine is $50,000. Your company's tax rate is 25%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? Excel
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
please use excel and show work
Transcribed Image Text:17.
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
$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 $40,000 per year for the next 10 years. The current machine is expected to
produce a gross margin of $20,000 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 $10,000 per year. The market value today of the current machine is $50,000. Your
company's tax rate is 25%, and the opportunity cost of capital for this type of equipment is 10%.
Should your company replace its year-old machine?
Excel
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education