A company is considering replacing one of its machines with a new, more efficient machine. Calculate the payback period and net present value.
Not what you're looking for?
A company is considering replacing one of its machines with a new, more efficient machine. The old machine presently has a book value of $100,000 and could be sold for $60,000. The old machine is being depreciated on a simplified straight line basis down to a salvage value of zero over the next five years, generating depreciation of $20,000 per year. The replacement machine would cost $300,000 and has an expected life of five years, after which it could be sold for $50,000. Because of reductions in defects and material savings, the new machine would produce cash benefits of $90,000 per year before depreciation and taxes. Assuming simplified straight line depreciation and the replacement machine is being depreciated down to zero for tax purposes even though it can be sold at termination for $50,000 a 34 percent marginal tax rate, and a required rate of return of 15 percent, find:
1. The payback period
2. Net Present Value
Purchase this Solution
Solution Summary
You will find the answer to this puzzling question inside...
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Operations Management
This quiz tests a student's knowledge about Operations Management
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.