Reference no: EM133120967

Please show your work using EXCEL SPREADSHEET.

CAR Corp. is considering the replacement of it injection molding machine. It is 2 years old but new technology has it considering the newest model. 

• The old (current) machine was acquired 2 years ago and is being depreciated on a straight line basis over 8 years (6 years remaining). The annual depreciation expense is $350 per year, and its current book value is $2,100. It can be sold for $2,500 today. If the machine is not replaced, it is expected to be sold for $500 at the end of its remaining life (6 yrs).  
• The new, replacement machine will cost $8,000. It is expected to be used for 6 years, and is 
• expected to be sold for $800 then. It will be depreciated using MACRS (5-year class with ½ year convention).
  The new machine is expected to support an increase in sales by $1,000 per year, and with its 
  improved electrical efficiency, it should reduce operating expenses by $1,500 per year.  
• Inventories will need to increase by $2,000 and Account payable will increase by $500.  
• The company's tax rate is 40%.  
• CAR's Cost of Capital is 15%, which is the appropriate Hurdle Rate for this project. 

Using a blank Excel workbook, evaluate this project: 

1. Present the cash flows

2. Calculate the evaluation measures.

3. Should CAR Corp replace the machine?