Replacement Analysis

$St.$ Johns River Shipyards' welding machine $is15$ years old, fully depreciated, and has $no$ salvage value. However, even though $itis$ old, $itis$ still functional $as$

originally designed and can $be$ used for quite a while longer. A new welder will cost $$181,500$ and have $an$ estimated life $of8$ years with $no$ salvage value. The

new welder will $be$ much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $$25,000to$ $$73,500$ per year. The

new machine will $be$ depreciated over its $5-$year MACRS recovery period, $so$ the applicable depreciation rates are $20\mathrm{.}00\%,32\mathrm{.}00\%,19\mathrm{.}20\%,11\mathrm{.}52\%,11\mathrm{.}52\%,$

and $5\mathrm{.}76\%.$ The applicable corporate tax rate $is25\%,$ and the project cost $of$ capital $is12\%.$ What $is$ the $NPVif$ the firm replaces the old welder with the new

one? $Do$ not round intermediate calculations. Round your answer $to$ the nearest dollar. Negative value, $if$ any, should $be$ indicated $by$ a minus sign.

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