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Capital budgeting

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The Chang company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However the machine is good and will last another 10 years. The replacement machine will produce after-tax cash flows (labor savings and depreciation) of $9000 per year. The new machine will cost $40,000 and will last 10 years. It has a zero salvage value. The firm's WACC is 10% and its marginal tax rate is 35 %. Should Chang buy the new machine?

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The response provides steps to compute Capital budgeting

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The Chang company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However the machine is good and will last another 10 years. The replacement machine will produce after-tax cash flows (labor savings and depreciation) of $9000 per year. The new machine will cost ...

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