View the step-by-step solution to:

Otter Outside Gear must decide whether to replace a 10 year old packing machine with a new one that cost $153,800.

Otter Outside Gear must decide whether to replace a 10 year old packing machine with a new one that cost $153,800.  Replacing the old machine will increase net operating income (excluding depreciation) from $70,000 to $110,000 and it will decrease net working capital by $18,000. The new machine falls in the MACRS 5-year class.  If the new machine is purchased, it will be sold in six years for $25,000; whereas, if the old machine is kept, it will have no salvage value in six years.  The old machine has a current market value of $10,860, and although its current book value is $8,000, in one year the old macine's book value will be zero ($0).  The firm's marginal tax rate is 40 percent, and its required rate of return is 12 percent.  Should the new packing machine be purchased?

Top Answer

NPV of the project=$23753 Since... View the full answer

npv16.JPG

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online