Considering the replacement of riveting machine

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Reference no: EM131318881

Tennessee River Shipyards is considering the replacement of an 8 year old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5 year MACRS recovery period. The applicable corporate tax rate is 40 percent, and the firm’s cost of capital is 12 percent. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one?

Reference no: EM131318881

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