Elon Industries DNA splicing equipment is old, but it is still in relatively good working order and would last for another 5 years. It is inefficient compared to modern standards, though, and so we are considering replacing it. A new DNA machine, at a cost of $425,000 delivered and installed, would also last for 5 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $83,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and the appropriate marginal tax rate is 21%.
a) Should Elon buy the new machine?
b) Use GOAL SEEK to find the machine cost today that makes the project break even.
