Should company replace year-old machine and why

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Reference no: EM132939120

Problem 1: One year? ago, your company purchased a machine used in manufacturing for $95,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $150,000 today. The CCA rate applicable to both machines is 20%?; neither machine will have any? long-term salvage value. You expect that the new machine will produce earnings before? interest, taxes,? depreciation, and amortization? (EBITDA) of $45,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $23,000 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 35%?, and the opportunity cost of capital for this type of equipment is 12%. Should your company replace its? year-old machine?

Reference no: EM132939120

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