One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $160,000 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 $60,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $21,000 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 $9,545 per year. The market value today of the current machine is $65,000. Your company's tax rate is 40%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? The NPV of replacing the year-old machine is $ (Round to the nearest dollar.)

One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $160,000 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 $60,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $21,000 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 $9,545 per year. The market value today of the current machine is $65,000. Your company's tax rate is 40%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine? The NPV of replacing the year-old machine is $ (Round to the nearest dollar.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

One year ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new
machine is available that offers many advantages and you can purchase it for $160,000 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 $60,000 per year for the next 10 years. The
current machine is expected to produce a gross margin of $21,000 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 $9,545 per year. The market value today of the current machine is $65,000. Your company's tax rate is
40%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old
machine?
The NPV of replacing the year-old machine is $
(Round to the nearest dollar.)

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