Reference no: EM133069756

ABC Co. is considering replacing a 3D printer that was purchased two years ago with a useful life of 8 years (6 years of which, is remaining). The CCA rate on this printer is 30%. Currently, it can be sold for $2,500. If this old printer is not replaced, it is not expected to have any value at the end of its useful life.

The replacement printer has a cost of $8,000 and estimated useful life of 6 years, and an estimated salvage value of $800. The CCA rate on this machine is also 30%. The replacement printer would allow an output expansion, so sales would rise by 1,000 per year. Moreover, the new printer is more efficient and would reduce operating expenses by $1,500 per annum. The new printer would require an inventory increase of $2,000, but accounts payable would simultaneously increase by $500. ABC Co. corporate tax rate is 30% and its WACC is 15%. Should the company replace the old machine?