Straight line depreciation schedule

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Reference no: EM13932609

Tried and true home repair is considering replacement of its bobcat. The old Machine cost $150,000 and was depreciated using a 5 year straight line depreciation schedule. The machine has been in operation for three years. It could be sold for $30,000 today. The new machine would cost $200,000 with $10,000 shipping. The firm will depreciate the equipment using a 5 year MACRS schedule. At the end of four years, the equipment can be sold for $50,000. The tax rate is 40%. The efficiency of the new machine will generate increased sales revenues of $120,000 per year with COGS of $50,000. The firm's A/R will rise by $30,000 and AP will rise by $20,000. The wacc is 9%. Should you replace the bobcat? Use NPV and IRR to make your decision and explain your decision. Show all steps. (Excel optional)

Reference no: EM13932609

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