A pharmaceutical company has some existing semiautomated production equipment that they are considering replacing. This equipment has a present MV of $55,000 and a BV of $29,000. It has fiveKmore years of straight-line depreciation available (if kept) of $5,800 per year, at which time its BV would be 50. The estimated MV of the equipment five years from now in year-zero dollars) is $10,500The MV rate of increase on this type of equipment has been averaging 3.7% per year. The total operating and maintenance and other related expenses are averaging $25,000 (AS) per year.New automated replacement equipment would be leased. Estimated operating and maintenance and related company expenses for the new equipment are $12,300 per year The annual leasing costwould be $24,300. The after-tax MARR (with an inflation component) is 12% per year ( 25%; and the analysis period is five years. Based on an after-tax, AS analysis, should the replacement bemade? Base your answer on the actual IRR of the incremental cash flowThe actual IRR of the incremental cash flow is % (Round to one decimal place.)

Data given: MARR=12% Tax rate=25% n=5 years Working Note #1 Description Amount ($) Market…

Answered: A pharmaceutical company has some…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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