Majestic, Inc. is a very profitable store in Houston

Majestic, Inc. is a very profitable store in Houston

Majestic, Inc. is a very profitable store in Houston
Subject: Business    / Finance
Question

Questions 1-5 are related to the same mega problem. Majestic, Inc. is a very profitable store in Houston, which is contemplating the replacement of a fully depreciated existing machine it had purchased for $22,500 five years ago. The replacement machine costs $37,500 and requires maintenance of $1,500 at the end of every year for ten years. The salvage/resale value of the new machine will be $7,500 at the end of 10 years. Once the old machine is replaced by the new machine, Majestic, Inc. expects to replace the new machine by a similar machine every ten years for the foreseeable future. The existing machine however

1)If Majestic, Inc. faces an opportunity cost of capital of 8.50 percent when should it replace the existing machine?

2)If Majestic, Inc. faces an opportunity cost of capital of 8.50 percent what is the total cost in present value terms of making the decision (at t = 0) of replacing the old machine at the optimal time and then replacing the new machine every ten years in perpetuity? (Enter an amount rounded off to the nearest whole number but without the $ sign.)

3)Now assume that the tax rate is 34% and the new machine will be fully depreciated over 10 years using the straight-line method. If Majestic, Inc. faces an opportunity cost of capital of 8.50 percent what is the total cost in present value terms of making the decision (at t = 0) to replace the old machine today (at t = 0) and then replacing the new machine every ten years in perpetuity? (Enter an amount rounded off to the nearest whole number but without the $ sign.)

4)Now assume that the tax rate is 34% and the new machine will be fully depreciated over 10 years using the straight-line method. If Majestic, Inc. faces an opportunity cost of capital of 8.50 percent, what is the total cost in present value terms of making the decision (at t = 0) to replace the old machine at the end of the third year (at t = 3) and then replacing the new machine every ten years in perpetuity thereafter? (Enter an amount rounded off to the nearest whole number but without the $ sign.)

5)Now assume that the tax rate is 34% and the new machine will be fully depreciated over 10 years using the straight-line method. If Majestic, Inc. faces an opportunity cost of capital of 8.50 percent, when should it replace the existing machine?

Please answer above questions