Reference no: EM132917899

One year? ago, your company purchased a machine used in manufacturing for $105,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $165,000 today. It will be depreciated on a? straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin? (revenues minus operating expenses other than? depreciation) of $45,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $25,000 per year. The current machine is being depreciated on a? straight-line basis over a useful life of 11? years, and has no salvage? value, so depreciation expense for the current machine is $9,545 per year. The market value today of the current machine is $45,000. Your? company's tax rate is 45%?, and the opportunity cost of capital for this type of equipment is 12%.

Problem 1: Should your company replace its? year-old machine?