Obsolete due to tightened product quality standards

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Reference no: EM13771660

A machine produces 1000 units of product per day in an existing manufacturing operation. The machine has become obsolete due to tightened product quality standards. Replacement machine A will cost $20,000 and will produce the needed 1000 units of product per day for the next 3 years with annual escalated dollar operating costs projected to be $8,000 in year 1, $10,000 in year 2 and $11,000 in year 3 with a $3,000 escalated dollar salvage value at the end of year 3. Depreciate the machine using 5-year life MACRS depreciation starting in year 0 with the half-year convention. Assume that other taxable income exists that will permit using all tax deductions in the year incurred. For an effective income tax rate of 40%, what is the present worth cost of the replacement machine "A"? Assuming 250 working days per year, for a minimum escalated dollar DCFROR of 24%.

A) 24,419

B) 18,400

C) 21,183

D) 26,764

Reference no: EM13771660

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