Holliday Manufacturing is considering the replacement of an existing machine. Th

Question

Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs $1.2 million and requires instillation costs of $150,000. The existing machine can be sold currently for $185,000 before taxes. It is two years old, cost $800,000 new, and has a $384,000 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a 5 year recovery period and therefore has the final 4 years of depreciation remaining. If it is held for 5 more years, the machine

Explanation / Answer

a.$350,000 b. -1350000+270000/1.09+432000/1.09^2+256500/1.09^3+162000/1.09^4+162000/1.09^5+200000/1.09^6= $ -308643.64 c. 0 -1350000 1 270000 2 432000 3 256500 4 162000 5 162000 6 200000 IRR= 3.133% d. Interest rate is lower than 12.2 like 9%. That

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