The Montevideo Office Equipment Company has offered to sell some new packaging equipment to the Cortez Company. The list price is $65,000, but Montevideo has agreed to allow a trade-in allowance of $21,000 on some old equipment. The old equipment was carried at a book value of $21,300 and could be sold outright for $20,000 cash. Cash-operating savings are expected to be $22,000 annually for the next 8 years. The required rate of return is 14%. The old equipment has a remaining useful life of 8 years. Both the old and the new equipment will have zero disposal values 8 years from now. Should Cortez buy the new equipment? Show your computations, using the NPV method. Ignore income taxes.

  • CreatedNovember 19, 2014
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