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One year ago, your company purchased a machine used in manufacturing for $ 120000. You have learned that a new machine is available that offers many advantages; you can purchase it for $ 140000 today. It will be depreciated on a straight-line basis over ten years, after which it has no salvage value. You expect that the new machine will contribute EBITDA (earnings before? interest, taxes, depreciation, and amortization) of $ 50000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 23000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $ 10909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50000. Your company's tax rate is 40 %, and the opportunity cost of capital for this type of equipment is 12 %. Is it profitable to replace the year-old machine?

The NPV of the replacement is________?.

(Round to the nearest dollar.)

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92357105

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