Homework Help is Here – Start Your Trial Now!
Science
Physics
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $140,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $24,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.)

One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $140,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $24,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.)

College Physics
College Physics
11th Edition
ISBN:9781305952300
Author:Raymond A. Serway, Chris Vuille
Publisher:Raymond A. Serway, Chris Vuille
Chapter1: Units, Trigonometry. And Vectors
Section: Chapter Questions
Problem 1CQ: Estimate the order of magnitude of the length, in meters, of each of the following; (a) a mouse, (b)...
See similar textbooks
icon
Related questions
Question
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $140,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $24,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.)
Transcribed Image Text:One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $140,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $24,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ (Round to the nearest dollar.)
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
Recommended textbooks for you
College Physics
College Physics
Physics
ISBN:
9781305952300
Author:
Raymond A. Serway, Chris Vuille
Publisher:
Cengage Learning
University Physics (14th Edition)
University Physics (14th Edition)
Physics
ISBN:
9780133969290
Author:
Hugh D. Young, Roger A. Freedman
Publisher:
PEARSON
Introduction To Quantum Mechanics
Introduction To Quantum Mechanics
Physics
ISBN:
9781107189638
Author:
Griffiths, David J., Schroeter, Darrell F.
Publisher:
Cambridge University Press
Physics for Scientists and Engineers
Physics for Scientists and Engineers
Physics
ISBN:
9781337553278
Author:
Raymond A. Serway, John W. Jewett
Publisher:
Cengage Learning
Lecture- Tutorials for Introductory Astronomy
Lecture- Tutorials for Introductory Astronomy
Physics
ISBN:
9780321820464
Author:
Edward E. Prather, Tim P. Slater, Jeff P. Adams, Gina Brissenden
Publisher:
Addison-Wesley
College Physics: A Strategic Approach (4th Editio…
College Physics: A Strategic Approach (4th Editio…
Physics
ISBN:
9780134609034
Author:
Randall D. Knight (Professor Emeritus), Brian Jones, Stuart Field
Publisher:
PEARSON
SEE MORE TEXTBOOKS