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ABC Co is considering replacing an old power generator with a new one. the old one...

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Finance

ABC Co is considering replacing an old power generator with anew one. the old one was purchased 5 years ago for $100,000. It isdepreciated straightline to zero over its 10 year life. it isexpected to be worthless at the end of its 10 year life. if ABCsells it today, ABC should receive $65,000 for the generator. thenew generator costs $150,000. it has a life of 5 years and will bedepreciated straightline to zero over its 5 year life. it isexpected to be worthless at the end of its 5 year life. the newgenerator is expected to reduce the operating costs by $50,000 peryear. there is no change in net working capital. the discount rateof this replacement is 15% and the tax rate is 40%.

Answer & Explanation Solved by verified expert
3.6 Ratings (506 Votes)
For old machine Depreciation expense is 10000010 or 10000 peryear cost the tax savings is 1000040 or 4000 per yearThe present value of 4000 savings per    See Answer
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