One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine i

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One Year Ago Your Company Purchased A Machine Used In Manufacturing For 115 000 You Have Learned That A New Machine I 1 (408.92 KiB) Viewed 30 times

One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $140,000 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 $60,000 per year for the next ten years. The current machine is expected to produce EBITDA of $22,000 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 $10,455 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 20%, and the opportunity cost of capital for this type of equipment is 11%. Is it profitable to replace the year-old machine? The NPV of the replacement is $ (Round to the nearest dollar.) Should your company replace its year-old machine? (Select the best choice below.) A. No, there a loss from replacing the machin B. Yes, there is a profit from replacing the machine.