replacing a 5year old machine that originally cost 50,000 and can be sold for 60
ID: 2698377 • Letter: R
Question
replacing a 5year old machine that originally cost 50,000 and can
be sold for 60,000. this machine is totally
depreciated. the replacementmachine would cost
125,000 and have a 5 year expected life overwhich
it would be depreciated down using the straight-line
method and have no salvage value at
the end of
five years Sumitomo
chemical corporation is considering
a replacing a 5 year old machine that
originally cost 50,000 and can be sold
for 60,000. this machine is totally depreciated.
the replacement machine would cost
125,000 and have a 5 year
expected life over which it would be
depreciated down using
the straight-line method and have no
salvage value at the end of
five years. the new machine would
produce savings before
depreciation and taxes of 45,000 per
year. assuming a 34% marginal tax rate
and a required return rate of 10%,
calculate:
present value
totallydepreciated. the machine presently has a
book value of 25,000 and is being
currently depreciated using the straight line method
down to the terminal value of zero
over the next five years,
generating depreciation of $5,000 per
year. if the rest of the
variables involved in the problem do
not vary, what is now the net
present value of substituting the
machine.?
Explanation / Answer
sorry i may not b of much use for u regarding this question .. but i found out sumthing similar and explained with lot of examples in the following page
http://userpage.fu-berlin.de/~ballou/cofi/mctest/test09.pdf
hoping that this serves u well
all the best
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