Replacement Analysis The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape
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Question:
Replacement Analysis
The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has years of remaining life. If kept, the steamer will have depreciation expenses of $ for years and $ for the sixth year. Its current book value is $ and it can be sold on an Internet auction site for $ at this time. If the old steamer is not replaced, it can be sold for $ at the end of its useful life.
Gilbert is considering purchasing the Side Steamer a higherend steamer, which costs $ and has an estimated useful life of years with an estimated salvage value of $ This steamer falls into the MACRS years class, so the applicable depreciation rates are and The new steamer is faster and allows for an output expansion, so sales would rise by $ per year; the new machine's much greater efficiency would reduce operating expenses by $ per year. To support the greater sales, the new machine would require that inventories increase by $ but accounts payable would simultaneously increase by $ Gilbert's marginal federalplusstate tax rate is and the project cost of capital is
What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
$
Should it replace the old steamer?
The old steamer
should
be replaced.
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