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The alternative to investing in the new production line is to overhaul the existing line, which currently has both a book value and a salvage value...
The alternative to investing in the new production line is to overhaul the existing line, which currently has both a book value and a salvage value of $0. It would cost $ 330,000 to overhaul the existing line, but this expenditure would extend its useful life to five years. The line would have a $0 salvage value at the end of five years. The overhaul outlay would be capitalized and depreciated using MACRS over three years. The tax rate is 35 percent, the opportunity cost of capital is 12 percent. The NPV of the new production line is $ -296,000 . Should ACME replace or renovate the existing line?
