You are thinking of purchasing a new machine (NEW) for your business operations and replacing the existing
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The new machine is expected to significantly boost the efficiency of your business operations. Annual savings in operating costs are expected to be $12,000. Also, your net working capital requirement will decline annually by $4,000. Your business pays tax at the rate of 35% and has a cost of capital rate of 12%. Does it make sense for you to replace the OLD machine with the NEW machine?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
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