3. Investment

Replacement — Quiz

Test your understanding of replacement with 5 practice questions.

Practice Questions

Question 1

A company is considering replacing an old machine. The new machine costs $200,000$ and has a 5-year useful life. The old machine has a remaining book value of $50,000$ and can be sold for $70,000$. The tax rate is $30\%$. What is the after-tax cash flow from the sale of the old machine?

Question 2

When analyzing an asset replacement decision, which of the following is the most appropriate method to account for the difference in depreciation between the old and new assets?

Question 3

A company is considering replacing an old machine. The new machine costs $100,000$ and has a 5-year useful life with a salvage value of $10,000$. The old machine has a book value of $20,000$ and a current market value of $15,000$. The tax rate is $30\%$. What is the after-tax salvage value of the old machine if it is sold?

Question 4

Which of the following scenarios would most likely lead to a positive incremental cash flow from an asset replacement?

Question 5

When analyzing an asset replacement project, the change in net working capital (NWC) is considered a relevant cash flow. How is an increase in NWC typically treated in the initial investment calculation?