Galveston Shipyards is considering the replacement of an
Galveston Shipyards is considering the replacement of an eight-year-old riveting machine with a new one that will increase earnings before depreciation and taxes from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of eight years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period. The firm’s marginal tax rate is 40%, and the firms required rate of return is 12%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Recovery View complete question » Galveston Shipyards is considering the replacement of an eight-year-old riveting machine with a new one that will increase earnings before depreciation and taxes from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of eight years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period. The firm’s marginal tax rate is 40%, and the firms required rate of return is 12%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Recovery Allowance Percentages for Personal Property Ownership Class of Investment________________________________________________ Year 3-year 5-year 7-year 10-year 1 33% 20% 14% 10% 2 45 32 25 18 3 15 19 17 14 4 7 12 13 12 5 11 9 9 6 6 9 7 7 9 7 8 4 7 9 7 10 6 11 3 100% 100% 100% 100%
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