The management team of High quality Co. is thinking about replacing an old texture sprayer machine with a new one. The old one cost us $1,800,000 one year ago; the new one will cost $1,760,000. The new machine will be in the 20% CCA rate class. It will probably be worth about $350,000 after five years. The old machine belongs to the same CCA Class. If the company doesn't replace it now, it will have to replace it in three years. High quality can sell the old machine now for $660,000; in three years, it will probably be worth $170,000. The new texture sprayer machine will save the company $320,000 per year in maintenance costs. The tax rate is 40%, and the discount rate is 15%. 

a) What is the NPV of the decision to replace the old machine now? 

b) Calculate the EAC for the old and new texture sprayer machines.

Answer rating: 100% (QA)

aj Npv Co t C 149 14 1760000 1100000 APV 1100000 220000 14015 4 660000 4 4 44 ... View the full answer