eorgia Energy is contemplating replacing an oil-powered generator with a solar powered generator. The old generator was purchased twenty-two years ago and is being depreciated over its 25-year life to a zero salvage value using straight-line depreciation. The old generator has a book value of $4.5 million but could be sold today for $3.0 million. The solar powered generator would cost $10 million and be depreciated over a 4-year life using MACRS (.3333,.4445,.1481,.0741). Due to the rapidly changing technology, it is anticipated that the new generator will b
eorgia Energy is contemplating replacing an oil-powered generator with a solar powered generator. The old generator was purchased twenty-two years ago and is being depreciated over its 25-year life to a zero salvage value using straight-line depreciation. The old generator has a book value of $4.5 million but could be sold today for $3.0 million. The solar powered generator would cost $10 million and be depreciated over a 4-year life using MACRS (.3333,.4445,.1481,.0741). Due to the rapidly changing technology, it is anticipated that the new generator will b
Chapter1: Financial Statements And Business Decisions
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Georgia Energy is contemplating replacing an oil-powered generator with a solar powered generator. The old generator was purchased twenty-two years ago and is being depreciated over its 25-year life to a zero salvage value using straight-line depreciation. The old generator has a book value of $4.5 million but could be sold today for $3.0 million. The solar powered generator would cost $10 million and be depreciated over a 4-year life using MACRS (.3333,.4445,.1481,.0741). Due to the rapidly changing technology, it is anticipated that the new generator will be sold after three years for $1.0 million. The new generator is expected to save Georgia Energy $10 million a year during its 3-year life. Georgia Energy will need to increase working capital by $1.5 million. The company’s WACC is 10% and the tax rate is 35%. What is the project’s net present value (NPV)? Should the oil-powered generator be replaced?
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