Net Salvage Value
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $21 million, of which 85% has been depreciated. The used equipment can be sold today for $4.2 million, and its tax rate is 35%. What is the equipment's after-tax net salvage value? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
$ __________
Replacement Analysis
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The new welder will cost $84,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $25,000 to $50,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the firm's WACC is 14%. Should the old welder be replaced by the new one?
Old welder should or should not be replaced.
What is the NPV of the project? Round your answer to the nearest cent.
$ __________