Lowell Inc. is thinking about replacing an old computer with a new one. The new one...

 

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Lowell Inc. is thinking about replacing an old computer with a new one. The new one will cost $1,000,000 and will have a life of FOUR years. The new computer qualifies as 5-year MACRS property. Years 1 2 3 4 Depreciation rate 20% 32% 19% 12% It will probably be worth about $300,000 after FOUR years. The old computer is being depreciated at a rate of $100,000 per year. It will be completely written off in FOUR years, at that time it will have zero resale value. We can sell it now for $310,000 after taxes. The new machine will save us $200,000 per year in operating costs. The tax rate (federal plus state) is 25 percent and WACC is 8 percent. What is the NPV? Lowell Inc. is thinking about replacing an old computer with a new one. The new one will cost $1,000,000 and will have a life of FOUR years. The new computer qualifies as 5-year MACRS property. Years 1 2 3 4 Depreciation rate 20% 32% 19% 12% It will probably be worth about $300,000 after FOUR years. The old computer is being depreciated at a rate of $100,000 per year. It will be completely written off in FOUR years, at that time it will have zero resale value. We can sell it now for $310,000 after taxes. The new machine will save us $200,000 per year in operating costs. The tax rate (federal plus state) is 25 percent and WACC is 8 percent. What is the NPV?

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of replacing the old computer with a new one we need to consi... View the full answer