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
GeKay stock is worth $100, or $80, or $60. Investors believe that each case is equally likely so that the current share price is the average, namely $80.  Suppose Mr. Satanak, th

can you assist with the all the rounds in compxm exam?

Two firms, Alpha and Beta, are in the same business and size and identical in all respects except the way in which they have financed their assets. If the economy does well in th

Question 1: Compare and contrast the Capital Asset Pricing Model with that of the Arbitrage Pricing Theory. Question 2: (a) Explain the concept of stock market efficien

The case company is a mail order/Internet apparel retailer operating only in the Netherlands. It divides each year into two selling seasons, spring-summer (December-June) and autum

The first part requires you to prepare a basic master budget. The general description is provided in Part A, in this document. However the data for the assignment is to be obtained

Calculating Cost of Equity. Bohannon Corporation''s common stock has a beta of 1.10. If the risk-free rate is 4.5% and the expected return on the market is 12%, what is the company


As the company''s sales and earnings increased, so did the demand for capital. The firm''s needs included inventory as well as additional space to house the inventory, computer fac

ABAN LOYD CHILES OFFSHORE LTD. Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4