XYZ Corporation is planning to purchase a new machine to replace an old one. The old machine
Question:
XYZ Corporation is planning to purchase a new machine to replace an old one. The old machine was purchased for $60,000 and has a book value of $20,000. The new machine costs $100,000 and has an expected useful life of 5 years with no salvage value. The old machine can be sold for $10,000. The company has a tax rate of 30% and a required rate of return of 10%.
a) Calculate the book value of the old machine and the after-tax proceeds from its sale.
b) Calculate the initial outlay for the new machine.
c) Calculate the annual depreciation expense for the new machine using the straight-line method.
d) Calculate the net present value (NPV) of the investment in the new machine.
e) Should XYZ Corporation invest in the new machine based on the NPV analysis? Explain.
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer