View solution to the question:

EAC

user
EAC
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $450,000; the new one will cost $580,000. The new machine will be
 depreciated straight-line to zero over its five-year life. It will probably be worth about $130,000 after five years. The old computer is being depreciated at a
 rate of $90,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now
 for $230,000; in two years it will probably be worth $60,000. The new machine will save us $85,000 per year in operating costs. The tax rate is 38 percent, and the
 discount rate is 14 percent. a.Calculate the EAC for old and new computer. b.What is the NPV of the decision to replace the computer now?
        
This question was answered on Jun 24, 2016.Purchase Solution @ 29.44 USD
EAC
CASH FLOWS Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cost of new computer -5,80,000 Cash flow from old computer sale 2,45,200 Saving in operating cost 85,000 85,000 85,000 85,000 85,000 Depreciation 1,16,000 1,16,000 1,16,000 1,16,000 1,16,000 Sale price of new computer 1,30,000 PBT -31,000 -31,000 -31,000 -31,000 99,000 Tax -11,780 -11,780 -11,780 -11,780 37,620 PAT -19,220 -19,220 -19,220 -19,220 61,380 Cash flow -3,34,800 96,780 96,780

About this Question

STATUS

Answered

CATEGORY

Finance

EXPERT

Professor Ted

ANSWER RATING

Need an Operations Management tutor?

Average reply time is less than an hour.

Get Homework Help