Important information about Replacement Chain
Cotner Clothes, Inc is considering the replacement of old fully depreciated knitting machine. Two new models are available. Machine 190-3, which has a cost of $190,00, a 3yr expected life, and after tax cash flows of $87000 per year; and machine 360-6, which has a cost of $360000, a 6 year life and after tax cash flows of $98300 per year. Assume that both projects can be repeated. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components used in the machines. Assume that Cotner's WACC is 14%. Should the firm replace its old knitting machine, and if so, which new machine should it use?