Question: although the chen companys milling machine is old it is...
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $42,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,600 per year. It would
have zero salvage value at the end of its life. The Project cost of
capital is 10%, and its marginal tax rate is 35%.
Should Chen buy the new machine?