Should the company replace an old machine based on this information? Accurately calculate the Net Present Value (NPV) to make a recommendation. Year Savings Before Depreciation and Tax Incremental Depreciation Earnings Before Tax Tax at 25% Earnings After Tax Adjustment to Add Back Depreciation 0 1 $ 42,000 $ $ (12,960) $ 2 42,000 $ (43,800) $ 3 42,000 $ (20,760) $ 4 5 6 Notes Tax Rate Discount Rate 42,000 $ (13,740) $ 42,000 $ (20,700) $ 42,000 (10,440) 25.00% 10% Cost of New Machine $ (180,000) Proceeds from Sale of Old Machine $ 37,600 Tax Benefit From Sale $ 5,000 Annual Cash Flows Cash Flows Discounted at 10% Net Present Value Change Sign Change Sign
Should the company replace an old machine based on this information? Accurately calculate the Net Present Value (NPV) to make a recommendation. Year Savings Before Depreciation and Tax Incremental Depreciation Earnings Before Tax Tax at 25% Earnings After Tax Adjustment to Add Back Depreciation 0 1 $ 42,000 $ $ (12,960) $ 2 42,000 $ (43,800) $ 3 42,000 $ (20,760) $ 4 5 6 Notes Tax Rate Discount Rate 42,000 $ (13,740) $ 42,000 $ (20,700) $ 42,000 (10,440) 25.00% 10% Cost of New Machine $ (180,000) Proceeds from Sale of Old Machine $ 37,600 Tax Benefit From Sale $ 5,000 Annual Cash Flows Cash Flows Discounted at 10% Net Present Value Change Sign Change Sign
Chapter11: Long-term Assets
Section: Chapter Questions
Problem 8PA: Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the...
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Question
![Should the company replace an old machine based on this information? Accurately calculate the Net Present Value (NPV) to make a recommendation.
Year
Savings Before Depreciation and Tax
Incremental Depreciation
Earnings Before Tax
Tax at 25%
Earnings After Tax
Adjustment to Add Back Depreciation
0
1
$
42,000 $
$
(12,960) $
2
42,000 $
(43,800) $
3
42,000 $
(20,760) $
4
5
6
Notes
Tax Rate
Discount
Rate
42,000 $
(13,740) $
42,000 $
(20,700) $
42,000
(10,440)
25.00%
10%
Cost of New Machine
$ (180,000)
Proceeds from Sale of Old Machine
$
37,600
Tax Benefit From Sale
$
5,000
Annual Cash Flows
Cash Flows Discounted at 10%
Net Present Value
Change Sign
Change Sign](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa6c80d2f-fb22-46e0-a7d2-9e0e9e0a531d%2F843d35c0-9cbd-4b42-b1ac-3ccb621ba1fa%2Fzg9g2d_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Should the company replace an old machine based on this information? Accurately calculate the Net Present Value (NPV) to make a recommendation.
Year
Savings Before Depreciation and Tax
Incremental Depreciation
Earnings Before Tax
Tax at 25%
Earnings After Tax
Adjustment to Add Back Depreciation
0
1
$
42,000 $
$
(12,960) $
2
42,000 $
(43,800) $
3
42,000 $
(20,760) $
4
5
6
Notes
Tax Rate
Discount
Rate
42,000 $
(13,740) $
42,000 $
(20,700) $
42,000
(10,440)
25.00%
10%
Cost of New Machine
$ (180,000)
Proceeds from Sale of Old Machine
$
37,600
Tax Benefit From Sale
$
5,000
Annual Cash Flows
Cash Flows Discounted at 10%
Net Present Value
Change Sign
Change Sign
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