A company is considering replacing an existing machine with a more moden one. Here are some of the details: The tax rate is 40%. Assume straight-line depreciation and a RRR of 10%. Assume the salvage value of the investment is equal to zero when calculating the depreciation charge. O Find the NPV associated with the project Old Machine New Machine $1,000,000 (7 years ago) $1,500,000 $200,000 $300,000 $0 (3 years from now) Purchase Price Market Value $1,500,000 $1,500,000 $100,000 (10 years from now) Book Value Salvage Value Age Original Life Yearly capacity Sales Price 7 10 10 55,000 units $7/unit 90,000 units $7/units Yearly expenses $100,000 $90,000 Training expenses Inventory not applicable $5,000 $30,000 $75,000
A company is considering replacing an existing machine with a more moden one. Here are some of the details: The tax rate is 40%. Assume straight-line depreciation and a RRR of 10%. Assume the salvage value of the investment is equal to zero when calculating the depreciation charge. O Find the NPV associated with the project Old Machine New Machine $1,000,000 (7 years ago) $1,500,000 $200,000 $300,000 $0 (3 years from now) Purchase Price Market Value $1,500,000 $1,500,000 $100,000 (10 years from now) Book Value Salvage Value Age Original Life Yearly capacity Sales Price 7 10 10 55,000 units $7/unit 90,000 units $7/units Yearly expenses $100,000 $90,000 Training expenses Inventory not applicable $5,000 $30,000 $75,000
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
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Transcribed Image Text:A company is considering replacing an existing machine with a more moden one. Here are some of the details:
The tax rate is 40%. Assume straight-line
depreciation and a RRR of 10%. Assume
the salvage value of the investment is
equal to zero when calculating the
depreciation charge. O Find the NPV
associated with the project
Old Machine
New Machine
$1,000,000 (7 years ago) $1,500,000
$200,000
$300,000
$0 (3 years from now)
Purchase Price
Market Value
$1,500,000
$1,500,000
$100,000 (10 years from now)
Book Value
Salvage Value
Age
Original Life
Yearly capacity
Sales Price
7
10
10
55,000 units
$7/unit
90,000 units
$7/units
Yearly expenses
$100,000
$90,000
Training expenses
Inventory
not applicable
$5,000
$30,000
$75,000
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