One year​ ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $160,000...






One year​ ago, your company purchased a machine used in manufacturing for
$115,000.

You have learned that a new machine is available that offers many advantages and you can purchase it for
$160,000

today. It will be depreciated on a​ straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin​ (revenues minus operating expenses other than​ depreciation) of
$35,000

per year for the next 10 years. The current machine is expected to produce a gross margin of
$24,000

per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, and has no salvage​ value, so depreciation expense for the current machine is
$10,455

per year. The market value today of the current machine is
$55,000.

Your​ company's tax rate is
35%​,

and the opportunity cost of capital for this type of equipment is
11%.

Should your company replace its​ year-old machine?





The NPV of replacing the​ year-old machine is
​$_____________

​(Round to the nearest​ dollar.)

Should your company replace its​ year-old machine?  ​(Select the best choice​ below.)







A.


Yes, there is a profit from replacing the machine.






B.


No, there is a loss from replacing the machine.




















Jun 06, 2022
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