Question: You are considering the possibility of replacing an existing machine
You are considering the possibility of replacing an existing machine that has a book value of $500,000, a remaining depreciable life of five years, and a salvage value of $300,000. The replacement machine will cost $2 million and have a 10-year life. Assuming that you use straight-line depreciation and that neither machine will have any salvage value at the end of the next 10 years, how much would you need to save each year to make the change (the tax rate is 40%)?
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