Purchasing new equipment to replace existing equipment

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Reference no: EM131826346

Urban-Gym Inc.is considering purchasing new equipment to replace existing equipment that has book value of zero and market value of $75,000 today and is expected to be worthless in 10 years. New equipment costs $450,000 and is expected to provide production savings and increased profits of $100,000 per year for the next 10 years. New equipment has expected useful life of 10 years, after which its estimated salvage value would be $50,000.New equipment will be straight-line depreciated to zero in 10 years. Company’s effective tax rate is 35% and required rate of return is 10%. Should Urban-Tech Inc. replace the current equipment?Answers with no step-by-step calculation will not receive any credit.

Reference no: EM131826346

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