Depreciation MACRS Purchase Price 33.33% 44.45% 14.81% 7.4100% 800,000 7.00% 30.00% 200,000 WACC Тах rate Salvage Value (New) Salvage Value (Old) Cost Savings (Annual) 90,000 200,000 NPV Project
Equipment Replace
ABC is looking to purchase a new machine for a 3 year project, that will cost $800,000 and replace the old machine that they were using. The old machine was being depreciated and has 20% of depreciation yet to be taken. The original cost of the old machine was $500,000 and it can be sold for $90,000. The new machine's depreciation schedule and salvage value are listed below. The new machine will result in annual cost savigns of $200,000.
Cost of new machine = $800,000
Book value of old machine = 20%*$500,000 = $100,000
After tax salvage value of old machine = Salvage value – Tax(Salvage Value – Book value)
=$90,000 – 30%*($90,000 - $100,000)
=$90.000 + $3,000
=$93,000
After tax salvage value of new machine:
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