The Taylor Corporation is using a machine that originally cost $66,000. The machine has a book value of $66,000 and a current market value of $40,000. The asset is in the Class 5 CCA pool that allows 35% depreciation per year. It will have no salvage value after 5 years and the company tax rate is 40 percent.

Jacques Detaille, the Chief Financial Officer of Taylor, is considering replacing this machine with a newer model costing $70,000. The new machine will cut operating costs by $10,000 each year for the next five years and will have a salvage value in year five of $5,000.

Taylor Corporation's cost of capital is 8 percent.

Should the firm replace the asset? What is your advice to Jacques? Use the NPV methodology to solve this problem. Organize and show all your work.

Answer rating: 100% (QA)

Part 2 The present value of annual savings is calculated with the use of formula given below Annual ... View the full answer