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Levels Tought:
Elementary,Middle School,High School,College,University,PHD
| Teaching Since: | May 2017 |
| Last Sign in: | 398 Weeks Ago, 4 Days Ago |
| Questions Answered: | 66690 |
| Tutorials Posted: | 66688 |
MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
A corporation is considering replacing an existing machine with a new machine. The new machine costs $60,000 plus installation costs of $2,000. It will generate revenues of $155,000 annually and cash expenses annually of $100,000. It will be depreciated to a salvage of $6,000 over a seven-year life using the straight-line method. The old machine has a book value of $40,000 and a remaining useful life of 5 years. It can be sold immediately for $15,000. If retained, the machine will generate revenues of $150,000 and cash expenses annually of $110,000. Assuming the firm has a marginal cost of capital of 12% and is in the 34% marginal tax bracket, should it replace the existing machine? Assume that this is a one-off decision - the choice is either keep the existing machine for five years or buy the new machine and run it for seven years.
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