Redo Problem 14.14 with the following additional information. The old machine has been fully depreciated.

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Redo Problem 14.14 with the following additional information.
• The old machine has been fully depreciated.
• The new machine will be depreciated under a seven-year MACRS class.
• The marginal tax rate is 40%, and the firm's after-tax MARR is 12%.
In Problem 14.14
The Wu Lighting Company is considering replacing an old, relatively inefficient vertical drill machine that was purchased seven years ago at a cost of $10,000. The machine had an original expected life of 12 years and a zero estimated salvage value at the end of that period. The divisional manager reports that a new machine can be bought and installed for $12,000. Furthermore, over its five-year life, the machine will expand sales from $10,000 to $ 11,500 a year and will reduce the usage of labor and raw materials sufficiently to cut annual operating costs from $7,000 to $5,000. The new machine has an estimated salvage value of $2,000 at the end of its five-year life. The old machine's current mar-ket value is $1,000; the firm's MARR is 15%.
(a) Should the new machine be purchased now?
(b) What price of the new machine would make the two options equal? Salvage Value
Salvage 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...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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