Considering replacement of ten-year-old riveting machine

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Reference no: EM131055518

St. Johns River Shipyards is considering the replacement of a 10-year-old riveting machine with a new one that will increase earnings before depreciation from $25,000 to $40,000 per year and require an additional $4,500 per year in working capital. The new machine will cost $77,525, require $5,000 to modify it for use, and it will have an estimated life of 6 years and no salvage value. The new machine will be depreciated over its 3-year MACRS recovery period, so its applicable depreciation rates for the first three years are 33.33%, 44.45%, and 14.81%. The applicable corporate tax rate is 40%, and the firm’s WACC is 12%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? This must be completed using a HP 12c Platinum calculator

Reference no: EM131055518

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Considering replacement of ten-year-old riveting machine : St. Johns River Shipyards is considering the replacement of a 10-year-old riveting machine with a new one that will increase earnings before depreciation from $25,000 to $40,000 per year and require an additional $4,500 per year in working capital.

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