T12-10 Replacement Project Example Osborn, Kruppa & Wolff, Inc. is evaluating whether to replace one of its machines. The current machine was purchased 3 years ago for $33,000 and falls into the MACRS 5-year class. It has 4 years of remaining life and a $9,000 salvage value four years from now. The current market value of the older machine is $18,500. Alternatively, the company could purchase a new machine for $44,000. Delivery of the new machine would cost $600 and installation would cost $200. The new machine is expected to increase inventory needs by $2,300, and accounts payable is expected to increase by $1,800. The new machine falls in the MACRS 5-year class, has a 4-year economic life and a salvage value at the end of 4 years of $24,000. It is not expected to increase revenue but is expected to decrease costs by $9,000 per year. The firm has a 40% tax rate and a cost of capital of 16% The MACRS 5- year class uses the following percentages: 20%, 32%, 19%, 12%, 11% and 6% (in that order). (Round all CFs to the nearest dollar.) T

T12-10 Replacement Project Example Osborn, Kruppa \& Wolff, Inc. is evaluating whether to replace one of its machines. The current machine was purchased 3 years ago for $33,000 and falls into the MACRS 5 -year class. It has 4 years of remaining life and a $9,000 salvage value four years from now. The current market value of the older machine is $18,500. Alternatively, the company could purchase a new machine for $44,000. Delivery of the new machine would cost $600 and installation would cost $200. The new machine is expected to increase inventory needs by $2,300, and accounts payable is expected to increase by $1,800. The new machine falls in the MACRS 5-year class, has a 4-year economic life and a salvage value at the end of 4 years of $24,000. It is not expected to increase revenue but is expected to decrease costs by $9,000 per year The firm has a 40% tax rate and a cost of capital of 16% The MACRS 5 year class uses the following percentages: 20%,32%,19%,12%,11% and 6% (in that order). (Round all CFs to the nearest dollar.) T12-10 Replacement Project Example Osborn, Kruppa \& Wolff, Inc. is evaluating whether to replace one of its machines. The current machine was purchased 3 years ago for $33,000 and falls into the MACRS 5 -year class. It has 4 years of remaining life and a $9,000 salvage value four years from now. The current market value of the older machine is $18,500. Alternatively, the company could purchase a new machine for $44,000. Delivery of the new machine would cost $600 and installation would cost $200. The new machine is expected to increase inventory needs by $2,300, and accounts payable is expected to increase by $1,800. The new machine falls in the MACRS 5-year class, has a 4-year economic life and a salvage value at the end of 4 years of $24,000. It is not expected to increase revenue but is expected to decrease costs by $9,000 per year The firm has a 40% tax rate and a cost of capital of 16% The MACRS 5 year class uses the following percentages: 20%,32%,19%,12%,11% and 6% (in that order). (Round all CFs to the nearest dollar.)