Question

St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $50,000 per year. The new machine will cost $85,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 18%. The old machine has been fully depreciated and has no salvage value.

What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.
$  

Should the old riveting machine be replaced by the new one?
-Select-Yes No

Answer 1

= 4.078 Calculation of NPV old machine Cash flow -$30,000 (-) Tax Hect & T600 (Ooxx 08%) Net cash in flow $ 22,500 PVAF (present value of (ix.,) praent value of cash inflow $22.600*4.018 =91,755 $ out flow - NIL NP v = inflow - out flow $91155 - 0 - $91755 mely faster) NPV = $91,155 old machine NOTE & The old machine has been fully deprecated & no soluage valec. So from 9th year onward out flow & Zero "o"

New machine & NOTE - New machine ů eligible for 100% bonus depreciation at the time of purchase. Su deprecation should claim at oth year te from year of starting . y can or factor (184,84) cosh mflow Dep Tara Tax@ 25% - ]x25h Net cash Me in flow pr of Net cash mflaw -0-0-0 -6340 = 0 0 $ 8500 - Jaso -63750 4.018 1,52,925 37500 l a 500 o 1- $ soooo $89175 present value of net cash inflow NPV = = NPV = PV of in flow - outflow (mitial mueytment) $ 89175 - $ 85000 $4175 NOTE 2 - Asume given WACC (184) & affer Corporate tar

Conclusion :- old machine alpv is higher than new machine NPV. So. No need to Replace the new machine in place of old machine. Answer & No,