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Consider a new line of equipment that will cost $760,000 and will
Consider a new line of equipment that will cost $760,000 and will save a company $160,000 in operating expenses for the next ten years. It will not affect sales, but it will result in an increase in Net Working Capital of $60,000.
The new line will replace an old line of equipment that will last for about 5 more years before it could be scrapped for $40,000. If sold today, the old equipment is worth $120,000. The old equipment was purchased five years ago for $450,000 and is being depreciated using the MACRS 7-year rates. The new equipment will also be depreciated using the 7-year rates. The company?s marginal tax rate is 35% and their cost of capital is 11%.
Calculate the NPV and IRR of this replacement project.
New Equipment Cost
Post Tax Annual Operating Expenses Saving
Increase in Working Capital
Post Tax Sale Value of Old Equipment
Post Tax Salvage Value Lost
Depreciation Tax Loss on Old...
This question was answered on: Feb 21, 2020
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