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XYZ Manufacturing Corporation recently has production equipment which has 4 years of remaining life. Equipment was bought year ago at the cost of $10,000. Annual depreciation for this machine is $1,800 and its expected salvage value is $1,000. Equipment can be sold today for $8,000. Company has been thinking of purchase of new machine which will replace existing one. New equipment costs $15,000 and would increase sales (through increased production) by $2,000 per year and reduce operating costs by $1,000 per year. Equipment falls into 3-year MACRS class and will be valueless after 4 years. Applicable depreciation rates are 0.33, 0.45, 0.15, and 0.07. Company's tax rate is 40 percent and its cost of capital is 12 percent. By how much would value of company change if it accepts replacement project?

A.$2,112.05

B 318.27

C.-$5,887.95

D.$ 552.62

E.$1,497.91

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M933594

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