Problem 6-30 Calculating Project NPV Calligraphy Pens is deciding when to replace its old machine. The machine's current salvage value is $2,750,000. Its current book value is $1,650,000. If not sold, the old machine will require maintenance costs of $680,000 at the end of the year for the next five years. Depreciation on the old machine is $330,000 per year. At the end of five years, it will have a salvage value of $125,000 and a book value of $0. A replacement machine costs $4,350,000 now and requires maintenance costs of $350,000 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 $715,000. It will be fully depreciated by the straight- line method. In five years, a replacement machine will cost $3,350,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 24 percent and the appropriate discount rate is 8 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 of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) New machine Old machine

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Vaibhav

D-76 A new chemical remediation tank is needed. C'urrent lechnology tanks, which cost $150,000, musI Ie drained and treated every 2 years at a cost of $30,000; the tanks will last 10 years, and ench will have a salvage value of 5% of first cost. A tank with new technology has just come on the market. T'hore are no periodic maintenance costs, and a tank will last 20 years. If the new tanks cost $325,000, what minimum salvage value, as a percentage of lirst cont, would be required for this technology to be a betler option? Use a 12% interest rate. (a) 10% (b) 36% (c) 57% (d) 72%

5 Homework Finch Freight Company owns a truck that cost $41,000. Currently, the truck's book value is $24,000, and its expected remaining useful life is four years. Finch has the opportunity to purchase for $30,500 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,100 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $18,000. Required Calculate the total relevant costs. Should Finch replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Replace With New Keep Old Total relevant costs Should Finch replace or continue the old truck? Replace the old truck. Continue to use the old truck.