QUESTION 4: Evelyn Chiang & Gloria Fong Manufacturing (EGM) is considering replacing the existing manufacturing equipment...

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QUESTION 4: Evelyn Chiang & Gloria Fong Manufacturing (EGM) is considering replacing the existing manufacturing equipment with the new equipment. The existing equipment has a current market value of $2,000,000, and a salvage value of $300,000 after 10 year. The new equipment can be purchased for $5,000,000, and will have a salvage value of $1,500,000 after 10 years. The new equipment will reduce the net working capital need by $500,000 immediately, will increase before tax operating revenue by $600,000 a year. CCA rate is 30%, tax rate is 40%, and the required rate of return is 14%. Should the equipment be replaced? QUESTION 4: Evelyn Chiang & Gloria Fong Manufacturing (EGM) is considering replacing the existing manufacturing equipment with the new equipment. The existing equipment has a current market value of $2,000,000, and a salvage value of $300,000 after 10 year. The new equipment can be purchased for $5,000,000, and will have a salvage value of $1,500,000 after 10 years. The new equipment will reduce the net working capital need by $500,000 immediately, will increase before tax operating revenue by $600,000 a year. CCA rate is 30%, tax rate is 40%, and the required rate of return is 14%. Should the equipment be replaced?

Answer rating: 100% (QA)

To determine whether the equipment should be replaced we can calculate the Net Present Value NPV of ... View the full answer