A six-year-old computer numerical control (CNC) machine that originally cost $8,000 has been fully depreciated, and its
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It is suggested that the machine be replaced by a new CNC machine of improved design at a cost of $6,000. It is believed that this purchase will completely eliminate breakdowns and the resulting cost of delays and that operation and repair costs will be reduced $200 a year from what they would be with the old machine. Assume a five-year life for the challenger and a $ 1,000 terminal salvage value. The new machine falls into a five-year MACRS property class. The firm's MARR
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is 12%, and its marginal tax rate is 30%. Should the old machine be replaced now?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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