The firm has a 25 percent tax rate and a 9 percent cost of capital.
The Woodruff Corporation purchased a piece of equipment three years ago for $248,000. It has anasset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $90,250. A new piece of equipment can be purchased for $318,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over thenext six years: Year New Equipment IOld Equipment$78,750I $24,50076,500I 15,00068,750I 9,50061,000I 7.00049,750I 7,00045,250I -8,500 The ?rm has a 25 percent tax rate and a 9 percent cost of capital. What is the net cost ofthe new equipment? Round your solution to two decimal places. 230,454.00 What is the present value of incremental bene?ts? Round your solution to two decimal places. 187,786.22 What is the NPV of this replacement decision? Round your solution to two decimal places. 43,495 8.34
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