X Company must decide whether to continue using its current equipment or replace it with new,...

  

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X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment: Current equipment Current sales value Final sales value Operating costs New equipment Purchase cost Final sales value Operating costs $10,000 7,000 60,500 $51,000 7,000 52,000 Maintenance work will be necessary on the new equipment in Year 4, costing $4,000. The current equipment will last for six more years; the life of the new equipment is also six years. Assuming a discount rate of 6%, what is the net present value of replacing the current equipment? X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment: Current equipment Current sales value Final sales value Operating costs New equipment Purchase cost Final sales value Operating costs $10,000 7,000 60,500 $51,000 7,000 52,000 Maintenance work will be necessary on the new equipment in Year 4, costing $4,000. The current equipment will last for six more years; the life of the new equipment is also six years. Assuming a discount rate of 6%, what is the net present value of replacing the current equipment?

Answer rating: 100% (QA)

SOLUTION Each machine has a life of 5 years and the decision of using the current machine or buying ... View the full answer