Replacement - Original Machine Initial cost = 100,000...

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Original Machine New Machine Initial cost = 100,000 Initial cost = 150,000 Annual depreciation = 9000 5-year life Purchased 5 years ago Salvage in 5 years = 0 Book Value = 55,000 Cost savings = 50,000 per year Salvage today = 65,000 3-year MACRS depreciation Salvage in 5 years = 10,000 Required return = 10% Tax rate = 40%
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3-year Macrs 1 0.33 2 0.44 3 0.15 4 0.07 init.val. 150000
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Original Machine New Machine Initial cost = 100,000 Initial cost = 150,000 Annual depreciation 9000 5-year life Purchased 5 years ago Salvage in 5 Book Value 55000 Cost savings Salvage today 65000 depreciation Salvage in 5 years 10000 Required retu Tax rate Income Statement - to calculate OCF years 0 1 2 Revenue (Cost Savings) 50000 50000 Depreciation -old 9000 9000 -new 49995 66660 incremental 40995 57660 EBIT 9005 -7660 Taxes 3602 -3064 OCF 46398 53064 change(NWC) NCS purchase new machine -150000 salvage 65000 tax on salvage 4000 after-tax salvage 61000 NCS -89000 0 0 CFFA -89000 46398 53064 NPV $54,801.29 positive NPV, therefore acc
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Replacement - Original Machine Initial cost = 100,000...

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