A special purpose turnkey stamping machine was purchased four years ago for $20,000 It was estimated at that time that this machine would have a life of 10 years, a salvage value of $3,000, and a removal cost of $1,500 These estimates are still good The machine has annual operating costs of $2,000 ...

It is assumed that the required service period is ver ...

A special-purpose turnkey stamping machine was purchased four years ago for $20,000. It was estimated at that

Question:

A special-purpose turnkey stamping machine was purchased four years ago for $20,000. It was estimated at that time that this machine would have a life of 10 years, a of $3,000, and a removal cost of $1,500. These estimates are still good. The machine has annual operating costs of $2,000. A new machine that is more efficient will reduce the operating costs to $1,000, but it will require an investment of $20,000 plus $1,000 for installation. The life of the new machine is estimated to be 12 years, a salvage of $2,000, and a removal cost of $1,500. An offer of $6,000 has been made for the old machine, and the purchaser is willing to pay for removal of the machine. Find the economic advantage of replacing or of continuing with the present machine. State any assumptions that you make. The firm's interest rate is 12% for any project justification on a before-tax basis. Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...