A corporation purchased a machine for $60,000 five years ago. It had an estimated life of 10 years and an estimated salvage value of $9,000. The current book value of this machine is $12,500. If the current market value is $30,000 and the effective income tax rate is 38%, what is the after-tax investment value (rounded to the nearest whole dollar) of the machine? Use the outsider viewpoint. The after-tax MARR is 10% per year.

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Nestor RutherfordLv2

17 Jul 2018

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The container corporation of America is considering replacing an automatic painting machine purchased 9 years ago for the $700,000. It has a market value today of $40,000. The unit costs $350,000 annually to operate and maintain. A new unit can be purchased for $800,000 and will have annual O&M costs of $120,000. If the old unit is retained, it will have no salvage value at the end of its remaining life of 10 years. The new unit, if purchased, will have a salvage value of $100,000 in 10 years. Using a EUAC measure and a MARR of 20%, perform a before tax analysis to see if the automatic painting machine should be replaced if it is taken as a trade-in for its market value of $40,000.

a. Use the cash flow approach (insider%u2019s view approach)

b. Use the opportunity cost approach (outsider%u2019s view point approach

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A company is considering replacing a painting machine purchased 9 years ago for $700,000. It has a market value today of $40,000. The unit costs $350,000 annually to operate and maintain. A new unit can be purchased for $800,000 and will have annual O&M costs of $120,000. If the old unit is retained, it will have no salvage value at the end of its remaining life of 10 years. The new unit, if purchased, will have a salvage value of $100,000 in 10 years. Analyze this using an EUAC measure and a MARR of 20% to perform a before-tax analysis to see if the painting machine should be replaced if the old painting machine is taken in as a trade-in for its market value of $40,000.

a. Use the cash flow approach