Problem A$-22($Static$)$ Compute Net Present Value

Lodi Fabrication is evaluating a proposal to purchase a new turbine to replace a less efficlent machine presently in use. The cost of the new equipment at time $0,$ Including dellvery and installation, is $$450,000.$ If it is purchased, Lodi will incur costs of $$25,000$ to remove the present equipment and revamp its facilities. This $$25,000$ is tax deductible at time $0.$

Depreclation on the new machine for tax purposes will be allowed as follows: year $1,$$$90,000$; year $2,$$$157,500$; and in each of years $3$ through $5,$$$67,500$ per year. The existing equipment has a book and tax value of $$250,000$ and a remaining useful life of $10$ years. However, the existing equipment can be sold for only $$100,000$ and is being depreciated for book and tax purposes using the straightline method over its actual life.

Management has provided you with the following comparative manufacturing cost data.

$\backslash$table$[[,$Present Equipment,$\backslash$table$[[$NeV$],[$Equipinent$]]],[$Annual capacity $($units$),900,000,960,000],[$Annual costs:,,$],[$Labor$,$$ $67,500,$$$56,000$