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Rodman Inc. considers replacing an old machine with a new one. The company has...
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Rodman Inc. considers replacing an old machine with a new one. The company has following information for the two machines:
1) Old Machine
· Initial cost is $600,000 (purchased 6 years ago)
· The machine is expected to be used for 5 more years and its salvage value in 5 years will be $86,016
· Salvage value of the machine today is $300,000
· The machine falls into Class 8 for CCA purposes (CCA rate of 20 percent per year; Accelerated Investment Incentive in the first year is applied).
2) New Machine
· Initial cost is $3,000,000 (today)
· The machine is expected to be used for 5 years and its salvage value in 5 years will be $860,160
· The machine will generate before-tax operating savings of $450,000 per year
· The machine falls into Class 8 for CCA purposes (CCA rate of 20 percent per year; Accelerated Investment Incentive in the first year is applied)
· The machine requires an increase in Net Working Capital today of $100,000 (to be regained in 5 years)
· Preliminary consultancy fee to analyze the machine performance is $80,000 and it has already been paid.
The discount rate is 15%. The tax rate is 30%.
What is the Net Present Value of the new machine purchase project?
Give the answer in thousands of dollars without decimal places, rounding to the nearest thousand (e.g., if the answer would be $154,790.34, give 155; or if the answer would be $154,392.28, give 154).