St johns rever shipyards welding machine is 15 years old

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Reference no: EM13618644

St. Johns rever shipyards welding machine is 15 years old, fully depreciated, obsolete, and has no salvage value. However, even though it is obsolete, it is perfectly functional as originally designed and can be used for quite a whilelonger. A new welder will cost $182,500 and have an estimated life of 8 years with no slavage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $27,000 to $74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40% and the firm's WACC is 12%. Should the old welder be replaced by the new one?

Reference no: EM13618644

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