in good working order and will last at least another 10 years. The proposed replacement machine will perform the operation so much more efficiently that Oviedo's engineers estimate that it will produce after-tax cash flows (labor savings and depreciation) of $9,000 per year. The new machine will cost $30,000 delivered and installed, and its economic life is estimated to be 10 years. It has zero salvage value. The firm's WACC is 10%, and its marginal tax rate is 35%.

Question

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Respuesta :

andromache andromache · Answer 1 · 2020-03-31T10:03:47+02:00

Answer:

$25,301.40

Explanation:

The computation of the net present value is shown below:

= Present value after considering the discount rate - initial investment

where,

Present value after considering the discount rate is

= Annual cash flows × PVIFA factor for 10% at 10 years

= $9,000 × 6.1446

= $55,301.40

And, the initial investment is $30,000

So, the net present value is

= $55,301.40 - $30,000

= $25,301.40

Hence, the company should buy the new machine