Selling an old machine or keeping it with a major overhaul

Assignment Help Financial Management

Reference no: EM131524143

Suppose you have to decide whether selling an old machine or keeping it with a major overhaul: A) Selling the machine at time zero for $400,000 with zero book value and paying the tax of 40%. B) Keeping the machine, which requires a major overhaul cost of $1,000,000 at time zero. The overhaul cost is depreciable from time 1 to year 6 (over six years) based on MACRS 7-year life depreciation with the half year convention (table A-1 at IRS). In this case machine can produce and generate equal annual revenue for six years (year 1 to 6) and salvage value of the machine will be $200,000 with zero book value at the end of year 6. The operating cost will be $80,000 per year from year 1 to year 6. Calculate the minimum annual revenue that machine has to generate to break-even the selling with NPV of keeping the machine. Consider 40% income tax rate and after-tax minimum ROR of 8%.

Reference no: EM131524143

Questions Cloud

Which probability assessment heuristic is work in gf : After observing a long run of red on a roulette wheel, many gamblers believe that black is bound to occur. Such a belief often is called the gambler's fallacy.

Assuming the price of a product is rising : Describe equivalent variation in words assuming the price of a product is rising. Provide a supporting diagram and ensure diagrams are labeled.

Discuss the consumer decision making process : Discuss the consumer decision making process. Provide a chart or diagram to support your discussion. Analyse how your consumers go through the process.

Compare your estimated stock prices with actual stock prices : Compare your estimated stock prices with actual stock prices as of January 3, 2017. What's your decision if you hold these stocks?

Selling an old machine or keeping it with a major overhaul : Suppose you have to decide whether selling an old machine or keeping it with a major overhaul:

Explain why statement h must be less probable than f : Look again at Problems II and I. These problems involve assessments of the relative likelihood of different statements.

Trends in the labor force participation : Write about the trends in the labor force participation after world war 2. What has caused the trends? Explain the rise in women's labor force participation.

Issue of insolvency an important factor : What factors are relevant in an assessment of whether a company is insolvent and why is the issue of insolvency an important factor.

What is the yield to call for these bonds : Using semiannual compounding, what is the yield to call for these bonds?

User Account

All Pages