Rhule Company wants to replace an existing machine with a new one which will cost $$40$ million dollars to purchase. The old machine was purchased $5$ years ago for $$25$ million dollars, and was being depreciated straight line to a zero salvage value over its ten year life. The old machine can be sold today for $$15$ million dollars. The new machine is expected to be depreciated straight line over its ten year economic life to a zero salvage value. It is assumed that it could be sold at the end of the year ten for $$1\mathrm{.}5$ million. Rhule expects to increase the investment in net working capital $($NWC$)$ by $$1\mathrm{.}5$ million, if the new machine is purchased. The NWC will be recovered at the end of the project$$s life. The acquisition of the new machine would increase sales by $$8$ million per year for ten years, and operating expenses $($excluding depreciation$)$ would also increase by $$2$ million per year. The company has a marginal tax rate of $20\%,$ and a cost of capital of $10\%.$ Should the old machine be replaced? Rhule is concerned that the cost of capital could be off $300$ basis points. Is his concern justified? Explain.

Can you show full excel functions for solving NPV$.$

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Introduction Rhule Company is considering replacing an existing machine with a new one which requires a thorough financial analysis to determine if the replacement is financially justified Various fac... View the full answer