The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new
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Question:
The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depreciated on a straightline basis, and it has years of remaining life. Its current book value is $ and it can be sold for $ at this time. Thus, the annual depreciation expense is $ $ per year. If the old machine is not replaced, it can be sold for $ at the end of its useful life.
Dauten is offered a replacement machine which has a cost of $ an estimated useful life of years, and an estimated salvage value of $ The replacement machine is eligible for bonus depreciation at the time of purchase. The replacement machine would permit an output expansion, so sales would rise by $ per year; even so the new machine's much greater efficiency would cause operating expenses to decline by $ per year. The new machine would require that inventories be increased by $ but accounts payable would simultaneously increase by $ Dauten's marginal federalplusstate tax rate is and its WACC is
What is the NPV of the incremental cash flow stream? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.
$
Should the company replace the old machine?
SelectYes or No
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