Question

Co X is considering replacing one of its weaving machines with a new, more efficient machine. The old machine is being depreciated on a straight-line basis down to a salvage value of zero over the next 5 years. It has a book value of $200,000 and could be sold for $120,000. The replacement machine would cost $600,000 and have an expected life of 5 years, after which it could be sold for $100,000. Because of reductions in defects and material savings, the new machine would produce cash benefits of $180,000 per year before depreciation and taxes. The present value of $1 at 15% received after 5 periods at 15% is 0.49718. The present value of an annuity of $1 for 4 periods at 15% is 2.85498, and for 5 periods is 3.35216.Assuming straight-line depreciation, a 40% marginal state and federal tax rate, and a required rate of return of 15%, find the Payback Period & the Net Present Value.

Answer 1

2:46 AM Sat 9 Nov Done a (11) WÎ 81%} Solution - Rate of return Old Machinery Book Nalue = $200,000 Selling Price = $ 120,000 ww? Мен cast = $ 600,00 life = 5 years Solwage vaule = $ 100,000 Orion per was 600K - 100k . $100,000 Брилаа. р. та бори Profit T-2 Tax after depreciation (47) = 180k-look - =80k 32K) & 48K Profit after tar NPV = 120,000 - 600,000 H109000x0.4.9718) +(180.000 y 3.35216)-(3200023-35216) =$ 65,837.68 Payback period - 600,000 148,000 = 4.05 years