St. Johns River Shipyards is considering the replacement of an8-year-old riveting machine with a new one that will increase earnings before depreciationfrom $24,000 to $46,000 per year. The new machine will cost $80,000, and it will have anestimated life of 8 years and no salvage value. The new machine will be depreciated overits 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%,12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm’s WACC is 10%.The old machine has been fully depreciated and has no salvage value. Should the old rivetingmachine be replaced by the new one? Explain your answer.
St. Johns River Shipyards is considering the replacement of an8-year-old riveting machine with a new one that will increase earnings before depreciationfrom $24,000 to $46,000 per year. The new machine will cost $80,000, and it will have anestimated life of 8 years and no salvage value. The new machine will be depreciated overits 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%,12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm’s WACC is 10%.The old machine has been fully depreciated and has no salvage value. Should the old rivetingmachine be replaced by the new one? Explain your answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
St. Johns River Shipyards is considering the replacement of an
8-year-old riveting machine with a new one that will increase earnings before
from $24,000 to $46,000 per year. The new machine will cost $80,000, and it will have an
estimated life of 8 years and no salvage value. The new machine will be depreciated over
its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%,
12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm’s WACC is 10%.
The old machine has been fully depreciated and has no salvage value. Should the old riveting
machine be replaced by the new one? Explain your answer.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education