MachineAhas been completely overhauled for$9000 and is
Chapter , Problem 13-51(choose chapter or problem)
MachineAhas been completely overhauled for$9000 and is expected to last another 12 years. The$9000 was treated as an expense for tax purposeslast year. MachineAcan be sold now for $30,000net after selling expenses, but will have no salvagevalue 12 years hence. It was bought new 9 yearsago for $54,000 and has been depreciated sincethen by straight-line depreciation using a 12- yeardepreciable life.Becauselessoutputis now required,MachineAcan be replaced with a smaller machine: MachineBcosts $42,000, has an anticipated life of 12 years,and would reduce operating costs $2500 per year. Itwould be depreciated by straight-line depreciationwith a 12- yeardepreciablelife and no salvagevalue.The income tax rate is 40%. Compare theafter-tax annual costs and decide whether MachineAshould be retained or replaced by MachineB.Usea 10% after-tax rate of return
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