One year ago, your company purchased a machine used in manufacturing for $100,000. You have learned that a new machine is available that offers many advantages; you can purchase it for$140,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest,taxes, depreciation, and amortization) of $45,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $24,000 per year. The current machine is beingdepreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $9,090.91 per year. All otherexpenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 30%, and the opportunity cost of capital for this type ofequipment is 15%. Is it profitable to replace the year-old machine?The NPV of the replacement is(Round to the nearest cent)

Step 1:Calculation of the net investment: Old equipmentCost$100,000Less: Depreciation per year…

Answered: One year ago, your company purchased a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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