Should your firm replace the existing machine

Reference no: EM13293219

Your firm is considering whether to replace an existing machine with a new one. The existing machine was purchased five years ago for $200,000 and has an economic life of ten years, that is, it will last for another five years. It will have no salvage value. The operating costs for this machine are $25,000 per year. This machine can be sold today for $80,000. The new replacement machine will do exactly the same job as the existing machine. This machine costs $140,000 and has an economic life of five years and no salvage value. The operating costs for this machine are $17,000 per year. Your firm's marginal tax rate is 30 percent. The firm uses straight-line depreciation and a discount rate of 10 percent for such projects. Should your firm replace the existing machine?

Reference no: EM13293219

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