The Ortiz Company is considering the purchase of a new machine to replace an old...
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The Ortiz Company is considering the purchase of a new machine to replace an old one. The machine currently being used has a book value and a market value of zero but is in good shape and could last another eight years. However, the proposed replacement machine will be more efficient so the company engineers think that it will produce after-tax cash flow savings of $35,000 per year (includes operating cash flows and tax benefit from depreciation). This new machine costs $165,000 delivered and installed and has a useful life of 8 years with zero salvage value. The company's WACC is 7% and its marginal tax rate is 25%. Should the new machine be purchased?
No, the net present value of the new machine is -$24,428
No, the net present value of the new machine is -$16,314
Yes, the net present value of the new machine is $22,433
Yes, the net present value of the new machine is $43,995
Yes, the net present value of the new machine is $54,139
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