# Machine A was purchased 5 years ago for \$90,000. Its operating cost is higher than expected, so it will be used for only 4 more years. Its operating cost this year will be \$40,000, increasing by \$2000 per year through the end of its useful life. The challenger, machine B, will cost \$150,000 with a \$50,000 salvage value after its

Chapter 11, Problems #42

Machine A was purchased 5 years ago for \$90,000. Its operating cost is higher than expected, so it will be used for only 4 more years. Its operating cost this year will be \$40,000, increasing by \$2000 per year through the end of its useful life. The challenger, machine B, will cost \$150,000 with a \$50,000 salvage value after its 10-year ESL. Its operating cost is expected to be \$10,000 for year 1, increasing by \$500 per year thereafter. What is the market value for machine A that would make the two machines equally attractive at an interest rate of 12% per year. Solve by hand and spreadsheet.

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...