Old Machine New Machine Purchase Price $1,000,000 (7 years ago) $1,500,000 Market Value $200,000 $1,500,000 Book Value $300,000 $1,500,000 Salvage Value $0 (3 years from now) $100,000 (10 years from now) Age 7 0 Original Life 10 10 Yearly capacity 55,000 units 90,000 units Sales Price $7/unit $7/units Yearly expenses $100,000 $90,000 Training expenses not applicable $30,000 Inventory $55,000 $75,000 A company is considering replacing an existing machine with a more modern one. 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 charges. Find the NPV associated with the project.
|
|
Old Machine |
New Machine |
|
Purchase Price |
$1,000,000 (7 years ago) |
$1,500,000 |
|
Market Value |
$200,000 |
$1,500,000 |
|
Book Value |
$300,000 |
$1,500,000 |
|
Salvage Value |
$0 (3 years from now) |
$100,000 (10 years from now) |
|
|
|
|
|
Age |
7 |
0 |
|
Original Life |
10 |
10 |
|
Yearly capacity |
55,000 units |
90,000 units |
|
Sales Price |
$7/unit |
$7/units |
|
Yearly expenses |
$100,000 |
$90,000 |
|
|
|
|
|
Training expenses |
not applicable |
$30,000 |
|
Inventory |
$55,000 |
$75,000 |
A company is considering replacing an existing machine with a more modern one. The tax rate is 40%. Assume straight-line
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 5 images
