The Taylor Corporation Is Using a Machine That Originally Cost

question 114

Essay

The Taylor Corporation is using a machine that originally cost $66,000. The machine has a book value of $66,000 and a current market value of $40,000. The asset is in the Class 8 CCA pool. It will have no salvage value after 5 years and the company tax rate is 40%.
Jacqueline Elliott, the Chief Financial Officer of Taylor, is considering replacing this machine with a newer model costing $70,000. The new machine will cut operating costs by $10,000 each year for the next five years. Taylor's cost of capital is 8%.
Should the firm replace the asset? (Use NPV methodology to solve this problem.)

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Definitions:

Dissociation

The process by which a member's involvement in an entity is terminated, typically in the context of a partnership or limited liability company.

Capital Contribution

Capital contribution refers to the funds, assets, or other resources a partner or shareholder provides to a partnership or corporation to support its operations or increase its equity.

Partnership Debts

Financial obligations or liabilities that a partnership, as a business entity, is responsible for.

Liability

A legal obligation or responsibility for any debts or damages incurred.