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I am trying to make sure I have this correct for a review. A firm is using a machine that originally cost $80,000.
I am trying to make sure I have this correct for a review...
A firm is using a machine that originally cost $80,000. The Machine is being depreciated by a straight line method over 8 years, which is $10,000 per year and has 4 years of depreciation remaining. The machine has a book value of $40,000 and a current market value of $31,500. The company is considering replacing this machine with a new model that costs $73,000. The new machine will save $5,000 in after tax earnings each year for the next 6 years. The new machine is in the 5 year MACRS category. The firm is in the 34% tax bracket and has 10% cost of capital. Calculate the cost of the new machine after deducting the cash inflow from the sale of the old machine.
