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(Solved) Pilot Plus Pens is deciding when to replace its old machine. The machine's current salvage value is $ 2.2 million. Its current book value is $ 1.4...


Pilot Plus Pens is deciding when to replace its old machine. The machineâs current salvage value is $ 2.2 million. Its current book value is $ 1.4 million. If not sold, the old machine will require maintenance costs of $ 845,000 at the end of the year for the next five years. Depreciation on the old machine is $ 280,000 per year. At the end of five years, it will have a salvage value of $ 120,000 and a book value of $ 0. A replacement machine costs $ 4.3 million now and requires maintenance costs of $ 330,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $ 800,000. It will be fully depreciated by the straight-line method. In five years a replacement machine will cost $ 3,200,000. Pilot will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 40 percent and the appropriate discount rate is 8 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation. Should Pilot Plus Pens replace the old machine now or at the end of five years ? 

please draw time axes.

 


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