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Question: A farmer is considering replacing a labor-intensive machine system with a more capital-intensive one. The new machinery costs $45,000; however, the trade-in value of the old system is $12,000. The new machinery will cost $24,000 per year to operate, but will replace one hired laborer whose annual salary is $30,000. Adopting the new machinery will increase annual depreciation by $5, 750. Further data indicates a 10 year planning horizon, zero salvage value, a 25% tax rate, and a 12% after-tax cost of capital. Use the NPV method to evaluate the new machinery system's profitability.

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Category:- Basic Finance
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