Uses straight line depreciation

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Reference no: EM131617769

GM2 corp has a machine it purchased 3 years ago for $30,000. The machine is expected to last 6 more years and have a salvage value of $5,000 then. It can be sold for $10,000 now.

GM2 canreplace this machine with a new improved model which costs $40,000 but is expected to reduce energy costs by $10,000 a year. This new machine should last 6 years and have a salvage value of $1,000.

GM2 uses straight line depreciation. It's tax rate rate is 40% paid quarterly and it's hurdle rate is 10%. Should it buy this new machine?

Reference no: EM131617769

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