Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $118,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,500 per year. It would have zero salvage value at the end of its life. The project cost of capital is 12%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV: $ Chen purchase the new machine.
Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $118,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and
NPV: $
Chen purchase the new machine.
Capital budgeting is the process that analyzes and evaluates any project's feasibility and profitability and help the investor to decide whether to accept the investment or not and also helps in choosing between the numerous alternatives available. There is a wide range of tools and techniques that can be employed for capital budgeting. The net present value is among them. It is the excess of cash flow's current worth over the initial investment.
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