If the replacement occurs, a new machine would be acquired from Busby Industries on January 2, 2008. The purchase price of $500,000 for the new machine would be paid in cash at the time of replacement. Due to the increased efficiency of the new machine, estimated annual cash savings of $150,000 would be generated through 2011, the end of its expected useful life. The new machine is expected to have a zero disposal price at the end of 2011.
All operating cash receipts, operating cash expenditures, and applicable tax payments and credits are assumed to occur at the end of the year. Hilltop employs the calendar year for reporting purposes.
Discount tables for several different interest (discount) rates that are to be used in any discounting calculations are given below. Assume for questions 2–6 that Hilltop is not subject to income taxes.
If Hilltop requires investments to earn an 8% return, the net present value for replacing the old machine with the new machine is?
Answer: The NPV for replacing the Old Machine with the New Machine is $46819.03 Solution: On replacing the Old Machine... View the full answer