The Quick Manufacturing Company, a largeprofitable

Chapter , Problem 13-41

(choose chapter or problem)

The Quick Manufacturing Company, a largeprofitable corporation, may replace a produc-tion machine tool. A new machine would cost$3700, have a 4-year useful and depreciable life,and have no salvage value. For tax purposes,sum-of-years-digits depreciation would be used.The existing machine tool cost $4000 4 years ago and has been depreciated by straight-line deprecia-tion assuming an 8- year life and no salvage value.The tool could be sold now to a used equipmentdealer for $1000 or be kept in service for another4 years. It would then have no salvage value. Thenew machinetool would saveabout$900 peryearinoperating costs compared to the existing machine.Assume a 40% combined state and federaltax rate. Compute the before-tax rate of returnon the replacement proposal of installing thenew machine rather than keeping the existingmachin