Question

Help finding the NPV of replacing the year old machine and if the company should replace it or not

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One year agoI your company purchased a machine used in manufacturing for 595,000. You have learned that a new machine
is available that offers many advantages and you can purchase it for $1Eflflflfi today. It will be depreciated on a straight-line
basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin {revenues minus
operating expenses other than depreciation] of 550,000 per year for the next ‘10 years. The current machine is eaqn-ected to
produce a gross margin of $25300 per year. The current machine is being depreciated on a straight—line basis over a useful
life cf 11 years, and has no salvage value, so depreciaticn expense for the current machine is $8.536 per year. The market
value today of the current machine is $55.0EJD. Your company‘s tax rate is 4G%, and the opportunity cost of capital for this type
of equipment is 12%. Should your company replace its year-old machine? The NW of replacing the year-old machine is ED. (Round to the nearest dollar.)