Daxter Bakers is trying to decide whethe Should keep its existing bread-making machi inological advantages (whiic Jover the existing mach Tollow Old machine New machine Original cost Accumulated depreciation Annual cash operating costs $10.000 $25.000 6.000 9.500 5.000 Current salvage value of old machine Salvage value in 10 years 2.500 650 1.200 Remaining life 12 yrs 12 yrs Refer to Baxter Bakers. The estimated $650 salvage value of the existing machine in 10 years represents aln) Select one: a. opportunity cost of keeping the existing machine for 10 years b. opportunity cost of selling the existing machine now O c.opportunity cost of keeping the existing machine and buying the new machine d. sunk cost

Daxter Bakers is trying to decide whethe Should keep its existing bread-making machi inological advantages (whiic Jover the existing mach Tollow Old machine New machine Original cost Accumulated depreciation Annual cash operating costs $10.000 $25.000 6.000 9.500 5.000 Current salvage value of old machine Salvage value in 10 years 2.500 650 1.200 Remaining life 12 yrs 12 yrs Refer to Baxter Bakers. The estimated $650 salvage value of the existing machine in 10 years represents aln) Select one: a. opportunity cost of keeping the existing machine for 10 years b. opportunity cost of selling the existing machine now O c.opportunity cost of keeping the existing machine and buying the new machine d. sunk cost

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 16P

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St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost 182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from 27,000 to 74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
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