Question - Lincoln tractor is 15 years old, fully depreciated, obsolete, and has no salvage value. However, even though it is obsolete, it is perfectly functional as originally designed and can be used for quite a while longer. The new tractor will cost $84,000, and have an estimated life of 8 years with no salvage value. The new tractor will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $26,000 to $52,000 per year. The new tractor 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 13%.
Should the old tractor be replaced by the new one?
What is the NPV of the project? Round your answer to the nearest cent.