Keep versus Replace: The existing machine cost $100,000 when it was purchased 5 years ago. The...

 

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Keep versus Replace: The existing machine cost $100,000 when it was purchased 5 years ago. The existing machine can be used for a further five years. If we sell the existing machine now, its salvage value would be $65,000. If we sell the machine in 5 years, its salvage value will be $1,000. We are considering replacing the existing machine with a newer model. The new machine would cost $150,000 and have a 5-year life. At the end of five years, its salvage value would be $10,000. By using a newer model, which is more efficient, we would save $50,000 in costs. There is no change in NWC investment because of this decision. Both machines have a 20% CCA rate. The company requires a 10% rate of return and has a 40% marginal tax rate What is the NPV for this decision? Would you recommend approval? Calculate and input the dollar amounts for each of the six steps (nearest dollar without dollar sign (5) or comma eg 15000) Negative cash flow is -15:000): What is the correct value for Step #1? What is the correct value for Step #2? What is the correct value for Step #3? What is the correct value for Step #4? What is the correct value for Step #5? What is the correct value for Step #6? What is the NPV for the project? Based on your answers to the first six questions, what is the appropriate course of action to follow? 4 Keep versus Replace: The existing machine cost $100,000 when it was purchased 5 years ago. The existing machine can be used for a further five years. If we sell the existing machine now, its salvage value would be $65,000. If we sell the machine in 5 years, its salvage value will be $1,000. We are considering replacing the existing machine with a newer model. The new machine would cost $150,000 and have a 5-year life. At the end of five years, its salvage value would be $10,000. By using a newer model, which is more efficient, we would save $50,000 in costs. There is no change in NWC investment because of this decision. Both machines have a 20% CCA rate. The company requires a 10% rate of return and has a 40% marginal tax rate What is the NPV for this decision? Would you recommend approval? Calculate and input the dollar amounts for each of the six steps (nearest dollar without dollar sign (5) or comma eg 15000) Negative cash flow is -15:000): What is the correct value for Step #1? What is the correct value for Step #2? What is the correct value for Step #3? What is the correct value for Step #4? What is the correct value for Step #5? What is the correct value for Step #6? What is the NPV for the project? Based on your answers to the first six questions, what is the appropriate course of action to follow? 4

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Here are the stepbystep calculations Step 1 Salvage value of existing machine if ... View the full answer