Question

Asked Apr 4, 2019

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One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers manyadvantages; you can purchase it for $160,000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $45,000 per year for the next ten years. The current machine is expected to produce EBITDA of $22,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,455 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 35%, and the opportunity cost of capital for this type of equipment is 11%. Is it profitable to replace the year-old machine?

What is the NPV of the replacement is $______ (Round to the nearest dollar.)

Step 1

**Calculation of NPV of Replacement:**

To calculate the NPV of Replacement, follow the below steps:

Step 2

**Calculation of Taxes from Sale of Old Machine for Year 0:**

Step 3

**Calculation of Cash Flow or Initial Investment for Year...**

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