Should the old riveting machine be replaced by the new one

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Question

Galveston Shipyards is considering the replacement of an eight-year-old riveting machine with a new one that will increase earnings before depreciation from$27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of eight years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period. (See Table 13A-2 at the end of this chapter for MACRS recovery allowance percentages.) The firm's marginal tax rate is 40 percent, and the firm's required rate of return is12 percent. The old machine has been fully depreciated and has no salvage value.

Should the old riveting machine be replaced by the new one?

Reference no: EM132809513

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