Reference no: EM132551466

The Woodruff Corporation purchased a piece of equipment three years ago for $248,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $90,250. A new piece of equipment can be purchased for $318,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years:

Year             New Equipment             Old Equipment

1                       $78,750                  $24,500
2                        76,500                     15,000
3                         68,750                     9,500
4                           61,000                      7,000
5                         49,750                        7,000
6                           45,250                         -8,500

The ?rm has a 25 percent tax rate and a 9 percent cost of capital.

Question 1: What is the net cost of the new equipment? Round your solution to two decimal places.

Question 2: What is the present value of incremental benefits? Round your solution to two decimal places.

Question 3: What is the NPV of this replacement decision? Round your solution to two decimal places.