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 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 $25,000 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 $8,636 per year. The market value today of the current machine is $45,000. Your company’s tax rate is 35%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine?The NPV of replacing the year-old machine is $____. (Round to the nearest dollar.)

Net present value is determined by deducting the initial investment from the current value of cash…

Answered: ars, and has no salvage value, so…

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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In Able Company’s efforts to estimate a value for Baker Company's goodwill, Able is estimating Baker Company's expected future earnings. Able is using Baker's past earnings to project the future earnings. Which of the following items should be eliminated from Baker's past earnings in order to project future earnings? Extraordinary items Amortization expense for identifiable intangibles a. Yes Nob. Yes Yesc. No Yesd. No No
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This question is based on the following information: Trinity Company bought a copying machine costing P 123,000 with an estimated life of 3 years with negligible salvage value. The estimated earnings after taxes of this machine at the end of each year are estimated below: Earnings after taxes End of year 1 P 8,120 2 7,200 3 6,820 The company is using the straight line method for computing the depreciation. What is the accounting rate of return on the average cost of investment? a. 10.5% b. 11.5% c. 12% d. 15%
raxton Inc. is considering the write-off of a limited-life intangible because of its lack of profitability. Explain to the management of Braxton how to determine whether a write-off is permitted.
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(d) If the old machine is sold for $5,000 now instead of $2,500, what would be the amount of the gains tax?(e) If the old machine had been depreciated by 175% DB and then by a switch to SL depreciation, what would be the current book value?(f) If the old machine were not replaced by the new one and has been depreciated by the 175% DB method, when would be the time to switch from DB to SL depreciation'?
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please look at numbers carefully. DONT COPY PASTE WRONG ANSWER.
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ars, and has no salvage value, so depreciation expense for the current %. Should your company replace its year-old machine?