How much is the net present value for replacement project

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Reference no: EM133901440

Problem

Jaga Manufacturing Corp. (JMC) is currently considering the replacement of an old machine with a new one. The new machine will cost $2,500,000 and will have an estimated useful life of five years. It can be sold for $450,000 at the end of this period. The old machine can be sold today for $300,000. In five years, it will have no salvage value. Although sales will not increase, cost of sales will decrease from 55% of sales when using the old machine to 40% of sales when using the new machine. Current sales are $3,500,000 per year. In addition, there will be savings on lower repairs and maintenance costs of $190,000 annually. Both machines qualify for a 30% capital cost allowance (CCA) rate. At the time of disposal, assume there will be assets remaining in the class and the undepreciated capital cost (UCC) balance will be positive after the deduction of proceeds. JMC has a tax rate of 25%, and the cost of capital for this project is 7%. Get the instant assignment help. How much is the net present value (NPV) for this replacement project, to the nearest $100?

Reference no: EM133901440

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