One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $170,000 today The CCA rate applicable to both machines is 30%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $55,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $21,000 per yea 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 10%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is 5 (Round to the nearest dollar)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages and that you can
purchase it for $170,000 today. The CCA rate applicable to both machines is 30%; neither machine will have any long-term salvage value You expect that the new machine will produce
earnings before interest, taxes, depreciation, and amortization (EBITDA) of $55,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $21,000 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 10%. Should your company replace its year-old machine?
What is the NPV of replacement?
The NPV of replacement is $(Round to the nearest dollar)
CHE
Transcribed Image Text:One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $170,000 today. The CCA rate applicable to both machines is 30%; neither machine will have any long-term salvage value You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $55,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $21,000 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 10%. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $(Round to the nearest dollar) CHE
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