## [answered] Marion Dexter Company is evaluating a proposal to purchase

Marion Dexter Company is evaluating a proposal to purchase a new machine that would cost \$100,000 and have a salvage value of \$10,000 in four years. It would provide annual operating cash savings of \$10,000, as follows:

 Old Machine New Machine Salaries \$40,000 \$26,000 Supplies ?? 7,000 ?? 5,000 Maintenance ?? 9,000 ?? 5,000 Total \$56,000 \$36,000

If the new machine is purchased, the old machine will be sold for its current salvage value of \$20,000. If the new machine is not purchased, the old machine will be disposed of in four years at a predicted salvage value of \$2,000. The old machine's present book value is \$40,000. If kept, in one year the old machine will require repairs predicted to cost \$35,000.

Marion Dexter's cost of capital is 14 percent; tax rate is 40%. Marine uses straight-line depreciation with no salvage value.?

Required:

Should the new machine be purchased? show calculations.

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This question was answered on: Sep 18, 2020

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