Question

One year​ ago, your company purchased a machine used in manufacturing for $ 95 comma 000....

One year​ ago, your company purchased a machine used in manufacturing for $ 95 comma 000. You have learned that a new machine is available that offers many​ advantages; you can purchase it for $ 160 comma 000 today. It will be depreciated on a​ straight-line basis over ten​ years, after which it has no salvage value. You expect that the new machine will contribute EBITDA​ (earnings before​ interest, taxes,​ depreciation, and​ amortization) of $ 35 comma 000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 20 comma 000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, after which it will have no salvage​ value, so depreciation expense for the current machine is $ 8 comma 636 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50 comma 000. Your​ company's tax rate is 40 %​, and the opportunity cost of capital for this type of equipment is 11 %. Is it profitable to replace the​ year-old machine?

The NPV of the replacement is ​$ nothing. ​(Round to the nearest​ dollar.)

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solution: 0 1 35000 -20000 2 35000 20000 3 35000 - 20000 4 35000 - 20000 5 35000 20000 6 35000| 20000 7 35000 -20000 8 35000

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