Replacement analysis, Corporate Finance

The Chang Co is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operations has a book value and a market value of zero. However, the machine is in good working order and will last at least another 10 years. The proposed replacement machine will perform the operation so much more efficiently that Chang's engineers estimate that it will produce after-tax cash flows (labor savings and depreciation) of $9,000 per year. The new machine will cost $40,000 delivered and installed, and its economic life is estimated to be 10 years. It has zero salvage value. The firm's WACC is 10%, and its marginal tax rate is 35%. Should Chang buy the new machine? Explain.

 

 

Posted Date: 2/26/2013 7:07:19 AM | Location : United States







Related Discussions:- Replacement analysis, Assignment Help, Ask Question on Replacement analysis, Get Answer, Expert's Help, Replacement analysis Discussions

Write discussion on Replacement analysis
Your posts are moderated
Related Questions
Consider Gavin, a new freshman who has just received a Stafford student loan and started college.  He plans to obtain the maximum loan from Stafford at the beginning of each year.

According to those who are in favor of borrowing, the MNCs can achieve lower financing costs and hence their competing ability is improved. But according to the international fishe

Question: σ 2 t = β 0 + β 1 σ 2 t - 1 + λ 1 ε 2 t -1 (a) Interpret parameter 1 and 1 in model (1) and derive the long-term unconditional variance. (b) What

You are required to provide a report of approx 500 words or less (excluding attachments and references), accompanied by relevant calculations, in MS Word, MS Excel and/or PDF forma

Many strategic decisions fail because they do not attend to the interests and information held by key stakeholders. This scenario has prompted a stakeholder's approach to cor

Suppose the dividends for the Seger Corporation over the past six years were $1.36, $1.44, $1.53, $1.61, $1.71, and $1.76, respectively. Compute the expected share price at the end


1. Motives - This section should include a detailed discussion of the main motives for the proposed acquisition supported by the latest academic literature and advances within the

What is the industry average price-earnings ratio? What is the price-earnings ratio for Ragan, Inc.? Is this the relationship you would expect between the two ratios?

ADIC is a sovereign wealth fund possessed by Abu Dhabi which is the capital of the United Arab Emirates (UAE). It is completely owned and managed by the UAE. The Abu Dhabi Investme