Question: Original Machine Initial cost = 1,000,000 Annual depreciation = 180,000 Purchased 2 years ago Book Value = 640,000 Salvage today = 700,000 Salvage in 3

Original Machine

Initial cost = 1,000,000

Annual depreciation = 180,000

Purchased 2 years ago

Book Value = 640,000

Salvage today = 700,000

Salvage in 3 years = 150,000

New Machine

Initial cost = 700,000

3-year life, straight-line depr

Salvage in 3 years = 100,000

Cost savings = 50,000/year

Required return = 10%

Tax rate = 40%

Should the company buy new machine?

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