Is it possible to do this problem below entirely on a financial calculator, if so please try to explain if you can work it out. Thanks!
One year ago, your company purchased a machine used in manufacturing for 72,000.00. You have learned that a new machine is available that offers many advantages; you can purchase it for 127,000.00 today. It will be depreciated on a straight-line basis over 10 years, after which it has a salvage value of 2,000.00. You expect that the new machine will produce additional EBITDA (earnings before interest, taxes, depreciation, and amortization) of 30,000.00 per year for the next 10 years. The current machine is expected to produce EBITDA of 13,000.00 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 a salvage value of 0.00, so depreciation for the current machine is 6,545.45 per year. All other expenses for the two machines are identical. The market value today of the current machine is 35,000.00. Your company's tax rate is 39%, and the opportunity cost of capital for this type of equipment is 17%.
What is the NPV of replacing the year-old machine?
One year ago, your company purchased a machine used in manufacturing for 72,000.00. You have learned that a new machine is available that offers many advantages; you can purchase it for 127,000.00 today. It will be depreciated on a straight-line basis over 10 years, after which it has a salvage value of 2,000.00. You expect that the new machine will produce additional EBITDA (earnings before interest, taxes, depreciation, and amortization) of 30,000.00 per year for the next 10 years. The current machine is expected to produce EBITDA of 13,000.00 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 a salvage value of 0.00, so depreciation for the current machine is 6,545.45 per year. All other expenses for the two machines are identical. The market value today of the current machine is 35,000.00. Your company's tax rate is 39%, and the opportunity cost of capital for this type of equipment is 17%.
What is the NPV of replacing the year-old machine?