Considering replacing labor-intensive machine system

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Reference no: EM131329764

A farmer is considering replacing a labor-intensive machine system with a more capital-intensive one. Adopting the new system is estimated to increase machinery operating expenses by about $21,000 per year and to replace one hired laborer, whose annual salary is $26,000. The new machinery costs $30,000; however, the trade-in value of the old system is $10,000. Adopting the new machinery will increase annual depreciation by $4,000. Further data indicate an eight-year planning horizon, zero salvage value, a 20 percent tax rate, and a 10 percent after-tax cost of capital. Use the NPV method to evaluate the new machinery system’s profitability

Reference no: EM131329764

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