Should the company replace the old machine

Reference no: EM13304905

The DT Corporation uses an injection molding machine that was purchased 2 years ago. Thia machine is being depreciated on a straight line basis, and it has 6 years of remaining life. Its current book value is $2,100, and it can be sold for $2,500 at this time. Thus, the annual depreciation expense is $2,100/6=$350 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life.

Dauten is offered a replacement machine that has a cost of $8,000, an estimated useful life of 6 years, and an estimated salvage value of $800. The machine falls into the MACRS 5-year class; so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11% and 6%. The replacement machine would permit an output expansion, so sales would rise by $1,000 per year. Even so, the new machine's greater efficiency would cause operating expenses to decline $1,500 per year. The new machine would require that inventories be increased by $2,000, but accounts payable would simultaneously increase by $500. Dauten's marginal federal-plus-state tax rate is %40, and its WACC is %15. Should the company replace the old machine?

Reference no: EM13304905

Questions Cloud

Compute the range of aperture diameters for the camera : A certain camera has f-numbers that range from 1.7 to 29. If the focal length of the lens is 57 mm, what is the range of aperture diameters for the camera

Find the mechanical energy lost as a result of collision : In an American football game, a 90.6 kg fullback running east with a speed of 5.00 m/s is tackled by a 94.3 kg opponent running north with a speed of 3.03 m/s. Determine the mechanical energy lost as a result of the collision

Explain about how big is the hole in the water pipe : A water main springs a leak and the geyser is estimated to be 20 feet in height. It is also estimated that about 300 gallons per minute is leaking based on flow into gutter. About how big is the hole in the water pipe

Calculate the electric potential induced across the rod : A small conductive rod of length 1.4 m moves with a constant velocity v=11 m/s in a direction parallel to a long wire carrying a current of 34 A. Calculate the electric potential induced across the rod

Should the company replace the old machine : Dauten's marginal federal-plus-state tax rate is %40, and its WACC is %15. Should the company replace the old machine?

Determine the dimensions of the best hydraulic section : A semicircular open channel to be made of concrete is to be designed to carry 1.5 m^3/s at a slope of 0.00085. Manning's roughness coefficient is 0.015. Determine the dimensions of the best hydraulic section.

Do you believe stock is undervalued and should be purchased : Your report should introduce and discuss the approaches and models you use, clearly identify any assumptions you are making, and clearly list the values and sources of input data.

What are the values of the lowest eight eigenvalues : Consider an electron in a square infinite well whose sides have length 0.05 nm. What are the values of the lowest eight eigenvalues

How many loom operators should be employed to minimize cost : A room has 10 cotton spinning looms. Once the looms are set up, they run automatically. The setup time is exponentially distributed, with mean 10 minutes. The machines run for an average of 40 minutes, also exponentially distributed.

User Account

All Pages