Ullt! Continue to assume that the 1.9) The Gilbert Instrument Corporation is con
ID: 2756982 • Letter: U
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Ullt! Continue to assume that the 1.9) The Gilbert Instrument Corporation is considering replacing the wood steamer it e uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, steamer will have depreciation expenses of s650 for five and s325 the sixth year. Its current $3,575, it can be sold on an auction site for of its at this time. the old steamer is not replaced, it can be sold for ssoo at the end useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,000 and has an estimated useful life of 6 years with an estimated salvage value of 500. This falls into the MACRS 5-year class, so the applicable rates are 20.00%, 3 19.20%, 11.52%, and 5.76%. The new faster and allows for an output expansion, so sales would rise by $2,000 per year the new machine's much greater efficiency would reduce operating expenses by $1900 per year To support the greater sales, the new machine would require that inventories increase by s2900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and its WACC is 15%. Should it replace the old steamer?Explanation / Answer
old steamer
tax sheild on dep & salvage value
new steamer
ITs better to repalce old stemer and sold it in internet auction site, as new steamer ahs more benefits than old steamer, and also increased sales and decreased operating expenses
year Amount tax % tax shield discounting factor @ 15% pv of tax shield 1 650 40 260 0.869 226 2 650 40 260 0.756 197 3 650 40 260 0.658 171 4 650 40 260 0.572 149 5 650 40 260 0.497 129 6 325 40 130 0.432 56 6 800 60 480 0.432 207 total benefit $1135Related Questions
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