10. Pilot Plus Pens is deciding when to replace its old machine. The old machine's current salvage vahe is $3 million. I

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10 Pilot Plus Pens Is Deciding When To Replace Its Old Machine The Old Machine S Current Salvage Vahe Is 3 Million I 1 (42.65 KiB) Viewed 57 times

10. Pilot Plus Pens is deciding when to replace its old machine. The old machine's current salvage vahe is $3 million. Its current book value is $2 million. If not sold, the old machine will require maintenance costs of $500,000 at the end of the year for the next five years. Depreciation on the old machine is $400.000 per year. At the end of five years, the old machine will have a salvage value of $400,000 and a book value of S0. A replacement machine costs $4 million now and requires maintenance costs of $350,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $1,000,000. It will be fully depreciated by the straight-line method. In five years, a replacement machine will cost $5,000,000 Pilot will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 28 percent and the appropriate discount rate is 10 percent. The company is assumed to eam sufficient revenues to generate tax shields from depreciation. Should Pilot Plus Pens replace the old machine now or at the end of five years?