Question: Otter must decide whether to replace a 10 year-old packing machine with a new one that costs$153,800. Replacing the old machine will increase net operating

Otter must decide whether to replace a 10 year-old packing machine with a new one that costs$153,800. Replacing the old machine will increase net operating income(excluding depreciation) from$70,000 to $110,000 and it will decrease net working capital by $18,000. The new machine falls into MACRS 5-year class. If the new machine is purchased, it will be sold in 6 years for $25,000, whereas, if the old machine is kept, it will have no salvage value in 6 years. The old machine has a current market value of $10,860 and although its current book value is $8,000, in one year the old machines book value will be zero ($0). The firms marginal tax rate is 40% and its required rate of return is 12%. Should the new packing machine be purchased? Explain.

Depreciation

NEW OLD

Year 1 -$22,760 $ 8,000

Year 2 - $49,216 $ 0

Year 3 - $29,222 $ 0

Year 4 - $18,456 $ 0

Year 5 - $ 16,918 $ 0

Year 6 - $9,228 $ 0

Is there a way to make a balance sheet to solve this? I was looking at examples and that seems to be what they are looking for?

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!

Radar Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install. The setter falls into the MACRS 3-year class, and it...

CHAPTER 10 2. (40 Points) Radar Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install. The setter falls into the...

Otter must decide whether to replace a 10 year-old packing machine with a new one that costs $153,800. Replacing the old machine will increase net operating income(excluding depreciation) from...

Otter Outside Gear must decide whether to replace a 10 year-old packing machine with a new one that costs $153,800. Replacing the old machine will increase net operating income (excluding...

10-14 Otter Outside Gear must decide whether to replace a 10 year old packing machine with a new one that costs. $142,600. Replacing the old machine will increase net operating income (excluding...

I I ' m stuck on the 1 2 % required return rate part. We have to use the BA 2 PLUS calculator ( no excel ) 1 0 - 1 8 Otter Outside Gear must decide whether to replace a 1 0 - year - old packing...

Otter Outside Gear must decide whether to replace a 10 year old packing machine with a new one that cost $153,800.Replacing the old machine will increase net operating income (excluding depreciation)...

Fairfield Office Supplies Inc. has a regional chain of office supply stores in the Midwest. Fairfield is trying to compete with the large nationwide office supply companies. It is January of 2023 and...

Fairfield Office Supplies Case -- Spring 2023 Fairfield Office Supplies Inc. has a regional chain of office supply stores in the Midwest. Fairfield is trying to compete with the large nationwide...

Fairfield Office Supplies Case Fairfield Office Supplies Inc. has a regional chain of office supply stores in the Midwest. Fairfield is trying to compete with the large nationwide office supply...

Hill has two options to enter the small business market through a partnership or through direct sales. The costs and pricing differ for each approach. Hill Partnership: Sales price is 35% lower Hill...

Discuss the Customs Trade Partnership Against Terrorism (C-TPAT).

State whether the following statements are true or false. MM s leverage - irrelevance proposition says: The value of the firm does not depend on the fraction

Consider the following linear programming problem: Maximize 12X + 10Y Subject to: 4X + 3Y 480 2X + 3Y 360 all variable 0 The maximum possible value for the objective function is 1560. 480. 360. 1520.

4. As your starting point, take two everyday decisions you have made during the past year. Discuss these decisions based on the following question: Why do you think your decisions may have been wrong?

1. To provide an understanding that social facts are mentally constructed and do not exist as an objective reality.

7. Give examples of the following when you formulate a social problem or phenomenon: a) When you generalize from reality. b) When you choose something from social reality and do not choose some-thing...