Question: Saint John River Shipyards is considering replacing an old riveting machine with a new one that will increase earnings before depreciation from $34,500 to $54,000

Saint John River Shipyards is considering replacing an old riveting machine with a new one that will increase earnings before depreciation from $34,500 to $54,000 per year. The new machine will cost $92,500, and it will have an estimated life of 8 years with an estimated salvage value of $6,500. The new machine falls into Class 43, which has a 30% CCA rate. The company is taxed at 30% and its WACC is 12%. If replaced today, the old machine could be sold for $4,000. If the old machine is kept, it will have no salvage value in 8 years. Should they replace the old riveting machine?

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