The Nova Company is considering replacing a machine that will cost $240,000.It expects to realize cost savings of $70,000 a year before taxes for each of the next five years.The company will use an accelerated method of depreciation as follows:

At the end of five years,the company expects the machine will have no salvage value.The company has a tax rate of 45 percent and has determined that 12 percent is the appropriate discount rate to use.Prepare an analysis showing the net present value.Indicate what salvage value is necessary of the old machine in order to justify the purchase of the new machine.

Question

The Nova Company is considering replacing a machine that will cost $240,000.It expects to realize cost savings of $70,000 a year before taxes for each of the next five years.The company will use an accelerated method of depreciation as follows:
  
At the end of five years,the company expects the machine will have no salvage value.The company has a tax rate of 45 percent and has determined that 12 percent is the appropriate discount rate to use.Prepare an analysis showing the net present value.Indicate what salvage value is necessary of the old machine in order to justify the purchase of the new machine.

Quizplus · Accepted Answer

The Answer of The Nova Company is considering replacing a machine that will cost $240,000.It expects to realize cost savings of $70,000 a year before taxes for each of the next five years.The company will use an accelerated method of depreciation as follows:
  
At the end of five years,the company expects the machine will have no salvage value.The company has a tax rate of 45 percent and has determined that 12 percent is the appropriate discount rate to use.Prepare an analysis showing the net present value.Indicate what salvage value is necessary of the old machine in order to justify the purchase of the new machine.

The Nova Company Is Considering Replacing a Machine That Will