Bull Gator Industries is considering a new assembly line costing $6,000,000.The assembly line will be fully depreciated by the simplified straight line method over its 5 year depreciable life.Operating costs of the new machine are expected to be $1,100,000 per year.The existing assembly line has 5 years remaining before it will be fully depreciated and has a book value of $3,000,000.If sold today the company would receive $2,400,000 for the existing machine.Annual operating costs on the existing machine are $2,100,000 per year.Bull Gator is in the 46 percent marginal tax bracket and has a required rate of return of 12 percent.
a.Calculate the net present value of replacing the existing machine.
b.Explain the impact on NPV of the following: 
Definitions:
Manufacturing Overhead
All indirect costs associated with the production process, including utilities, rent, and salaries for non-direct labor.
Raw Materials Inventory
The total cost of all components and raw materials that a company has in stock, which are intended to be used in the production of finished goods.
Accounts Receivable
Money owed to a company by its customers for goods or services delivered but not yet paid for.
Job Order Cost System
An accounting system that assigns costs to individual units or batches of production, often used in manufacturing where products are custom made.
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