If pcs cost of capital is 10 should the replacement be made

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PC, Inc., has a stamping machine which is 5 years old and which is expected to last another 10 years. It has a book value of $100,000 and is being depreciated by the straight-line method to zero. Tri-State Industries has demonstrated a new machine with an expected useful life of 10 years (scrap value $50,000) that should save PC $15,000 a year in labor and maintenance costs. If PC's cost of capital is 10%, should the replacement be made? PC's tax rate is 40%, the new machine will cost $200,000, and an investment tax credit of 10% applies. The market value of the old machine is $10,000 and a $10,000 increase in working capital will be needed to support the new machine.

Reference no: EM13571146

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