Replace an existing assembly with a more modern version

Assignment Help Financial Management

Reference no: EM13810401

The Cement Corp is planning to replace an existing assembly with a more modern version. the old equipment was purchased 5 years ago for $500,000 and depreciated to a zero value over the 5 years. The new equipment cost $1,000,000 and will be depreciated using the straight-line method over its 5 year economic life. The salvage value at the end of the 5th year is expected to be $80,000. The new machine will reduce costs by $600,000. the old equipment can be sold for $40,000. They will have to set aside net working capital of $20,000 in year 0.

- If the cost of capital is 16% and the tax rate is 40%, should they replace the machine?

- If they estimate that additional net working capital of $30,000 in year 1, $40,000 in year 2, and $50,000 in year 3 will be required, how that will affect the answer.

Reference no: EM13810401

Questions Cloud

Explain how to use the security market line to select stocks : Explain how to use the Security Market Line to select stocks. Explain the significance of the risk-free rate and the market risk premium.

The canterbury tales : The Canterbury Tales

Explain why NPV is preferred over IRR : Explain why NPV is preferred over IRR if there is a conflict between the two methods in the selection of projects

Identify all of the lines of code within the program : Identify all of the lines of code within the program that are associated with obtaining user input. This can be done by either copying the lines into your answers or highlighting the lines within the code.

Replace an existing assembly with a more modern version : The Cement Corp is planning to replace an existing assembly with a more modern version. the old equipment was purchased 5 years ago for $500,000 and depreciated to a zero value over the 5 years. If the cost of capital is 16% and the tax rate is 40%, ..

Complete a roadmap of the current it projects : Using the case provided, build on Part 1 of your IT Strategic Plan. Develop IT strategies to align to the business strategies, complete a roadmap of the current IT projects, propose a new IT project to support the IT strategies, identify risks ass..

Expected rate of return of both stocks using dividend growth : What are the required rates of returns on both stocks using the CAPM model? What are the expected rates of return of both stocks using the dividend growth model. Which stock would you recommend to purchase or sell? Why?

Address the issue of database conversion : In addition, you need to address the issue of database conversion. Once they implement your database, how does your client enter the data they already have?

Develop an it mission and vision for the organization : Using the case provided, analyze the business environment described to develop of an IT Strategic Plan. Identify the business' strategic objectives, develop an IT mission and vision for the organization

User Account

All Pages