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  • Should You Replace a Six-Year-Old Machine That Cost $150K

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    Mamun Rashid
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    The company owns a machine that was purchased 6 years ago for $150,000 and is now worth $90,000. A new machine would cost $50,000 but reduce operating costs by $30,000 per year for 9 years. The old machine could be sold for $50,000. To determine if the old machine should be replaced, calculate the after-tax cash flows of keeping the old machine versus buying the new one over 9 years using the given cost of capital, depreciation, and tax rate information.

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    A Machine Purchased Six Years Ago Forx

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    The company owns a machine that was purchased 6 years ago for $150,000 and is now worth $90,000. A new machine would cost $50,000 but reduce operating costs by $30,000 per year for 9 years. The old machine could be sold for $50,000. To determine if the old machine should be replaced, calculate the after-tax cash flows of keeping the old machine versus buying the new one over 9 years using the given cost of capital, depreciation, and tax rate information.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    138 views1 page

    Should You Replace a Six-Year-Old Machine That Cost $150K

    Uploaded by

    Mamun Rashid
    The company owns a machine that was purchased 6 years ago for $150,000 and is now worth $90,000. A new machine would cost $50,000 but reduce operating costs by $30,000 per year for 9 years. The old machine could be sold for $50,000. To determine if the old machine should be replaced, calculate the after-tax cash flows of keeping the old machine versus buying the new one over 9 years using the given cost of capital, depreciation, and tax rate information.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    1.

    A machine purchased six years ago for $ 150000 has been depreciated to a
    book value of $ 90000. It originally had a projected life of 15 years and zero
    salvage value. A new" machine will cost $ #50000 and result in a reduced operating cost of $
    30000 per year for the next nine years. The older machine could be sold for
    $5 0 0 0 0 . t h e c o s t o f c a p i t a l i s 1 0 % . t h e n e w m a c h i n e w i l l b e d e p r e c i a t e d
    o n a straight line basis over nine years life with $ 5000 salvage value. the
    company tax rate is 55%. Determine "whether the old machine should be replaced?
    2.

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