A company is interested in replacing its printing machine. Would you buy the new pri

timer Asked: Jan 22nd, 2015

Question description

     A company is interested in replacing its printing machine.  Would you buy the new printer given the following information?

a.Cost of the machine is $100,000 and has an expected life of 5 years with no salvage value.

b.A new printer would increase revenues by $20,000 per year.

c.It would reduce costs by $10,000 per year?

d.The old machine has a book value of 40,000 with two years remaining to be depreciated.

e.The market value of the old machine is $20,000.

f.The company uses a straight-line depreciated schedule.

g.The setup and delivery cost is $20,000 that can be expensed immediately (t=0).

h.A 10% investment tax credit is available and does not change the depreciation basis.

i.The cost of capital is 10% and the tax rate is 35%.

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