Business
Business, 05.03.2021 01:40, gsls6165

One year ago, Baffle Bag and Box Company (BB&B) purchased a new folder for $11,000. The company now finds a new box folder is available that may offer significant advantages. The new machine can be purchased for $15,000, has an economic life of 10 years, and has no salvage value. It is expected that the new machine will produce a gross margin of $4,000 per year, so that, using straight-line depreciation, the annual taxable income will be $2,500. The current machine is expected to produce a gross margin of $2,000 per year, and, assuming a total economic life of 11 years and straight line depreciation, a profit before taxes of $1,000. The current market value of the old machine is $5,000. BB&B’s tax rate is 45%, and its cost of capital after tax is 10 percent. Ignore possible capital gain taxes and assuming zero salvage values at the end of the machines’ economic lives, should BB&B replace its year-old box folder?

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One year ago, Baffle Bag and Box Company (BB&B) purchased a new folder for $11,000. The company...

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