Today is January 1, 2023. Two years ago (January 1, 2021), your company purchased a machine used in manufacturing for $100,000. The current machine is being depreciated on a straight-line basis over a useful life of 10 years, after which it will have no salvage value. The depreciation of the current machine started on January 1, 2022. The market value today, if sold, of the current machine is $50,000. The current machine is expected to produce EBITDA of $10,000 per year. Today you have learned that a new machine is available that offers many advantages and you can purchase it for $120,000. It will be depreciated on a straight-line basis over 8 years, after which it has no salvage value. If bought today, the first time depreciation will be charged is January 1, 2024. You expect that the new machine will produce EBITDA of $40,000 per year for each of the next 8 years. The working capital needed in either case is de minimize thus it should be ignored completely. The tax rate is 20%, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable today to replace the current machine?

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Okay lets solve this stepbystep Current machine was purchased on 112021 for 100000 It is being depre... View the full answer