Opportunity cost of capital for type of equipment

Assignment Help Financial Management

Reference no: EM131909066

One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $200,000 today. It will be depreciated on a straight-line basis over 5 years, after which it has no salvage value. You expect that the new machine will produce EBITDA (earnings before interest, taxes, depreciation, and amortization) of $100,000 per year for the next 5 years. The current machine is expected to produce EBITDA of $45,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 6 years, after which it will have no salvage value, so depreciation expense for the current machine is $20,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $80,000. Your company’s tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the yearold machine?

Reference no: EM131909066

Questions Cloud

Light and dark reactions of photosynthesis : What are the light and dark reactions of photosynthesis? Examples/thoughts?

What is the role of the plasma membrane : What is the role of the plasma (cell) membrane? How does this relate to cell signaling? Examples to share?

Why was the electoral college results significant : What meaning do you gather from the political cartoon provided that shows the map of the United States without the electoral college?

Explore the world through music thread in forums : After your website is completed and published, post a link to your website in the WK8: Exploring the World through Music thread in Forums.

Opportunity cost of capital for type of equipment : Your company’s tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the year old machine?

How does the video make you feel about the worlds future : What ideas that we have studied so far in class can help you better understand the facts and trends presented in the video? explain how they apply.

Which stock would you be likely to add to your portfolio : If you anticipated a major stock market rally, which stock would you be most likely to add to your portfolio? Why?

Write program that solves problem according to behavior tree : COMP 131 Introduction to Artificial Intelligence Assignment. Write Java program that solves problem according to Behavior Tree

Identify a health problem or need for health promotion : Identify a health problem or need for health promotion for a particular stage in the life span of a population from a specific culture in your area.

User Account

All Pages