Air Links, a commuter airline company, is considering replacing one of its baggage-handling machines with a newer

Question:

Air Links, a commuter airline company, is considering replacing one of its baggage-handling machines with a newer and more efficient one. The current book value of the old machine is $50,000, and it has a remaining useful life of five years. The expected from scrapping the old machine at the end of five years is zero, but the company can sell the machine now to another firm in the industry for $10,000. The new baggage-handling machine has a purchase price of $ 120,000 and an estimated useful life of seven years. It has an estimated of $30,000 and is expected to realize economic savings on electric power usage, labor, and repair costs and also to reduce the amount of damaged luggage. In total, an annual savings of $50,000 will be realized if the new machine is installed. The firm uses a 15% MARR. Using the approach,
(a) What is the initial cash outlay required for the new machine?
(b) What are the cash flows for the defender in years zero through five?
(c) Should the airline purchase the new machine?
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... Opportunity Cost
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