Question: ABC Co is considering replacing an old power generator with a new one. the old one was purchased 5 years ago for $100,000. It is

ABC Co is considering replacing an old power generator with a new one. the old one was purchased 5 years ago for $100,000. It is depreciated straightline to zero over its 10 year life. it is expected to be worthless at the end of its 10 year life. if ABC sells it today, ABC should receive $65,000 for the generator. the new generator costs $150,000. it has a life of 5 years and will be depreciated straightline to zero over its 5 year life. it is expected to be worthless at the end of its 5 year life. the new generator is expected to reduce the operating costs by $50,000 per year. there is no change in net working capital. the discount rate of this replacement is 15% and the tax rate is 40%.

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