Evaluate the new machinery system profitability

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Reference no: EM131333622

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 dollar 21,000 per year and to replace one hired laborer, whose annual salary is dollar 26,000. The new machinery costs dollar 30,000; however, the trade-in value of the old system is dollar 10,000. Adopting the new machinery will increase annual depreciation by dollar 4,000. Further data indicate an eight-year planning horizon, zero salvage value, a 10 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: EM131333622

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