A competitor had offered $35,000 cash for machine, an amount that represented its current book value. If Davidson opted to the keep the machine, Magic would continue to claim depreciation of $6000 per year for each of the next five years, at which point the machine would be unserviceable and would be sold for $5000 as scrap. If Davidson elected to keep and repair the old machine, it would require $28,000 to be spent immediately and $7000 in regular maintenance in each of the next five years. In year 3, the machine would require another investment of $4000for a larger scheduled service.

 

What is the cashflow and NPV of the existing machinery?

Answer rating: 100% (QA)

To calculate the cashflow and net present value NPV of the existing machinery we need to consider the cash inflows and outflows associated with each o... View the full answer