Considering replacing its machine with new model

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Reference no: EM131932751

TM company is considering replacing its machine with a new model that sells for $40,000, the cost of installation is $6,000. The old machine has been fully depreciated and has a $2500 salvage value. The new machine will be depreciated as a 3-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years the new machine is expected to have a $1500 salvage value. What are the NPV, IRR for this project if TM has a required rate of return of 14% and a marginal tax rate of 35%? Operating costs are not expected to increase from the current level of $8,000 per year. Discuss your recommendations.

Reference no: EM131932751

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