Homework Help is Here – Start Your Trial Now!
Business
Finance
Calculate the NPV for the new and old machines. (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)

Calculate the NPV for the new and old machines. (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
See similar textbooks
icon
Related questions
Question
Calligraphy Pens is deciding when to replace its old machine. The machine's current salvage value is $2,400,000. Its current book value is $1.475,000. If not sold, the old machine will require maintenance costs of $645,000 at the end of the year for the next five years. Depreciation on the old machine is $295,000 per year. At the end of five years, it will have a salvage value of $90,000 and a book value of $0. A replacement machine costs $4,000,000 now and requires maintenance costs of $315,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $680,000. It will be fully depreciated by the straight-line method. In five years, a replacement machine will cost $3,000,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 22 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation. Calculate the NPV for the new and old machines. (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) Old machine New machine
Transcribed Image Text:Calligraphy Pens is deciding when to replace its old machine. The machine's current salvage value is $2,400,000. Its current book value is $1.475,000. If not sold, the old machine will require maintenance costs of $645,000 at the end of the year for the next five years. Depreciation on the old machine is $295,000 per year. At the end of five years, it will have a salvage value of $90,000 and a book value of $0. A replacement machine costs $4,000,000 now and requires maintenance costs of $315,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $680,000. It will be fully depreciated by the straight-line method. In five years, a replacement machine will cost $3,000,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 22 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation. Calculate the NPV for the new and old machines. (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) Old machine New machine
Expert Solution
steps

Step by step

Solved in 3 steps with 4 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Present Value
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Fundamentals Of Financial Management, Concise Edi…
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
SEE MORE TEXTBOOKS