Question: In 2011 the Tricola Company is considering whether to replace
In 2011 the Tricola Company is considering whether to replace its old deicer with a more efficient deicer that costs $ 100,000. The old deicer has a book value of $ 16,000 and can be sold for $ 20,000. The new deicer will save $ 28,000 of operating cash flows before taxes in each of the next five years. Tricola will take $ 20,000 of depreciation in each of the next five years. It has a 30 percent tax rate and a 14 percent cost of capital. Calculate the NPV of this potential investment. Should Tricola buy the new deicer?
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