Question: Needing help on figuring out NPV for this question. I keep coming up incorrect. One year ago, your company purchased a machine used in manufacturing

Needing help on figuring out NPV for this question. I keep coming up incorrect.

Needing help on figuring out NPV for this question. I keep coming

One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers many advantages: you can purchase it for $1?0,000 today. It will be depreciated on a straightline basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization} of $35,000 per year for the next ten years. The current machine is expected to produce EBITDA of $21,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,455 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 42%, and the opportunity cost of capital for this type of equipment is 11%. Is it protable to replace the yearold machine? The NW of the replacement is SD. (Round to the nearest dollar.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!