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What is the net present value of the decision

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Reference no: EM132742218

Victor Manufacturing Company is considering investing in a new machine at a price of $25.5 million to replace its existing machine. The current machine has book value of $7.5million and a salvage value today of $6.75 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $5.65 million in operating costs each year over the next four years. Both machines are depreciated using straight-line method and will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $356,000 in net working capital. The required return on the investment is 15 percent, and the tax rate is 42 percent. What is the net present value (NPV) of the decision to replace the old machine?

Reference no: EM132742218

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