Company X bought a machinery five years ago for 7,500$. The machinery has expected useful life 15
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- Company X bought a machinery five years ago for 7,500$. The machinery has expected useful life 15 years and zero residual value at the end of the 15 years. The amortization is done based on the fixed amortization method and the current book value is 5000$. The company can choose on either buying a new machinery for 12,000$ (including installation expenses) which in the 10 years of useful life will increase the sales from 10000 to 11000 annually.
- Furthermore, it will decrease labor and raw material cost from 7000 to 5000. The new machinery is expected to have a residual valud 2000 at the end of the 10 years. Today, the commercial valud of the old machinery is 1000, tax rate is 40% and the weighted average cost of capital is 10%. Should the company replace the machinery?
- Calculate by using NPV, MIRR and replacement chain.
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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