Should the old riveting machine be replaced by the new one

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Reference no: EM13327967

Galveston shipyards is considering the replacement of an eight year old riveting machine with a new one that will increase earnings before depreciation and taxes 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 years MACRS recovery period ( year1, 20%, 2, 32%, 3, 19%, 4, 12%, 5, 11%, 6, 6%) THe firms marginal tax rate is 40%, and the firms required rate of return is 12%. 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: EM13327967

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