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The Chang Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 10 years. The proposed replacement machine will perform the opera- tion so much more efficiently that Chang's engineers estimate that it will produce after-tax cash flows (labor savings and depreciation) of $9,000 per year. The new machine will cost $40,000 delivered and installed, and its economic life is estimated to be 10 years. It has zeno salvage value. The firm's WACC is 10%, and its marginal tax rate is 35%. Should Chang buy the new machine?

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Financial Management, Finance

Category:- Financial Management
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