One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just...

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One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just two years earlier for $40,000. The company must either repair the machine or purchase new machine. The estimated cost of repairing the machine is $24,000, after which operating costs will be $69,000 a year. It will also require a maintenance check in the third year that is estimated to cost $2,000. A new machine will cost $83,000, but it will be more efficient than the repaired machine, with annual operating costs of only $54,000. Both the repaired machine and the new machine will last for six years, at which time the repaired one would be worthless, and new one would be worth $7,000. If it is not repaired, the damaged machine can be sold immediately for $6,000. Assuming a discount rate of 6%, what is the net present value of repairing the damaged machine instead of buying the new machine? [Use the present value tables in the Coursepack.] One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just two years earlier for $40,000. The company must either repair the machine or purchase new machine. The estimated cost of repairing the machine is $24,000, after which operating costs will be $69,000 a year. It will also require a maintenance check in the third year that is estimated to cost $2,000. A new machine will cost $83,000, but it will be more efficient than the repaired machine, with annual operating costs of only $54,000. Both the repaired machine and the new machine will last for six years, at which time the repaired one would be worthless, and new one would be worth $7,000. If it is not repaired, the damaged machine can be sold immediately for $6,000. Assuming a discount rate of 6%, what is the net present value of repairing the damaged machine instead of buying the new machine? [Use the present value tables in the Coursepack.]

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