Is it profitable to replace the year-old machine

Assignment Help Finance Basics

Reference no: EM133911309

Problem

One year ago, your company purchased a machine used in manufacturing for $ 105,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $ 150 ,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before interest, taxes, depreciation, and amortization) of $ 50,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $ 23,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $ 9,545.45 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50,000. Your company's tax rate is 40 %, and the opportunity cost of capital for this type of equipment is 10 %. Is it profitable to replace the year-old machine? Get the instant assignment help.

Reference no: EM133911309

Questions Cloud

What is the current value of this preferred stock : What is the current value of this preferred stock? If yield on Standard & Poor's Preferred Stock Index declines, how will price of preferred stock be affected?

Develop proficiency in psychopharmacology management : Develop Proficiency in Psychopharmacology Management and Implement Evidence-Based Psychotherapy Interventions

What is the new value of the perpetuity : If the current appropriate annual interest rate is 3%, what is the current value of the perpetuity? What is the new value of the perpetuity?

Explain cost-benefit analysis process that should followed : Explain the cost-benefit analysis process that should be followed when determining whether to fund a capital improvement or expenditure.

Is it profitable to replace the year-old machine : Your company's tax rate is 40 %, and the opportunity cost of capital for this type of equipment is 10 %. Is it profitable to replace the year-old machine?

Explain how and why the trends would : Explain how and why the trends would or would not be effective or successful in your workplace or in an allied health organization in your chosen field

How might a tort lawyer evaluate a settlement offer : Focuses on the concept of time value of money, as in, A dollar today is worth more than a dollar tomorrow. How might a tort lawyer evaluate a settlement offer?

Example of a culturally competent practice in healthcare : Identify an example of a culturally competent practice in healthcare. How does it contribute to equity? Share one website, article, or video in support of this.

Risk management functions and quality improvement : Risk management functions and quality improvement functions in an organization can overlap in terms of addressing patient and staff safety

User Account

All Pages