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Category > Business & Finance Posted 04 May 2017 My Price 10.00

One year ago, your company purchased a machine

 

 
 

 

  1.         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; you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will produce EBITDA (earning before interest, taxes, depreciation, and amortization) of $40,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $20,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,000 per year. All other expenses of the two machines are identical. The mar- ket value today of the current machine is $50,000. Your company’s tax rate is 45%, and the opportunity cost of capital for this type of equipment is 10%. Is it profitable to replace the year-old machine?

    Sep 17 2015 01:47 PM

     

     

Answers

Alpha Geek
(8)
Status NEW Posted 04 May 2017 08:05 AM My Price 10.00

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Attachments

file 1493888294-Answer.docx preview (275 words )
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