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 three years earlier for $50,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $20,000, after which operating costs will be $64,000 a year. It will also require a maintenance check in the second year that is estimated to cost $4,000. A new machine will cost $82,000, but it will be more efficient than the repaired machine, with annual operating costs of only $55,000. 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 $6,500. If it is not repaired, the damaged machine can be sold immediately for $5,000. Assuming a discount rate of 6%, what is the net present value of buying the new machine instead of repairing the damaged 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 three years earlier for $50,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $20,000, after which operating costs will be $64,000 a year. It will also require a maintenance check in the second year that is estimated to cost $4,000. A new machine will cost $82,000, but it will be more efficient than the repaired machine, with annual operating costs of only $55,000. 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 $6,500. If it is not repaired, the damaged machine can be sold immediately for $5,000. Assuming a discount rate of 6%, what is the net present value of buying the new machine instead of repairing the damaged machine? [Use the present value tables in the Coursepack.]
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Particulars Period Amount PV Factor Present Value Cash Outflows Cost of new Equipment ... View the full answer
Related Book For
Business Statistics For Contemporary Decision Making
ISBN: 978-1118749647
8th edition
Authors: Black Ken
Posted Date:
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