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solina solina
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Bull Gator Industries is considering a new assembly line costing $6,000,000. The assembly line will be fully depreciated by the simplified straight line method over its 5 year depreciable life. Operating costs of the new machine are expected to be $1,100,000 per year. The existing assembly line has 5 years remaining before it will be fully depreciated and has a book value of $3,000,000. If sold today the company would receive $2,400,000 for the existing machine. Annual operating costs on the existing machine are $2,100,000 per year. Bull Gator is in the 46 percent marginal tax bracket and has a required rate of return of 12 percent.

a.   Calculate the net present value of replacing the existing machine.
b.   Explain the impact on NPV of the following:
   i.   Required rate of return increases
   ii.   Operating costs of new machine are increased
   iii.   Existing machine sold for less
Textbook 
Financial Management: Principles and Applications

Financial Management: Principles and Applications


Edition: 13th
Authors:
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Heavy Heart Thank you bio-forums! Heavy Heart
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David_hessDavid_hess
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