Should firm replace the asset

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Reference no: EM1373976

The Taylor Corporation is using a machine that initially cost $66,000. The machine has a book value of $66,000 and a present market value of $40,000. The asset is in the Class 5 CCA pool which allows 35 percent depreciation per year. It will have no salvage value after 5 years and the company tax rate is 40%. Jacqueline Elliott, the Chief Financial Officer of Taylor, is considering replacing this machine with a new model costing $70,000. The new machine will cut operating costs by $10,000 every year for the next five years. Taylor's cost of capital is 8%. Should the firm replace the asset?

Reference no: EM1373976

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