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Replacement analysis - The Change Company is considering

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Replacement analysis - The Change 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 in good working order and will last at least another 10 years. The proposed replacement machine with perform the operation so much more efficiently that Chang?s engineers estimate that it will produce after-tax flows (labor savings and depreciation of $9,00 per year. The new machine will cost $40,000 delivered and installed, an economic life is estimated to be 10 years. It has zero salvage value. The firm?s WACC is 10% and it marginal tax rate is 35%. Should Chen buy a new machine?

 

Paper#34042 | Written in 18-Jul-2015

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