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St. John River Shipyards is considering the replacement of an 8 year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5 year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 12%. Yje old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M961152

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