Question: Please help. I can't figure this out One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a
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 and you can purchase it for $165,000 today. It will be deprecated on a straight line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $55,000 per year for the next 50 years. The current machine is expected to produce a gross margin of $21,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expenses for the current machine is $10,455 per year. The market value today of the current machine is $60,000. Your company's tax rate is 42% and the opportunity cost of capital for this type of equipments is 10%. Should your company replace its year-old machine? The NPV of replacing the year-old machine is
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