Question: Replacement decisions (S6.4) You are operating an old machine that is expected to produce a cash inflow of $5,000 in each of the next three

Replacement decisions (S6.4)

You are operating an old machine that is expected to produce a cash inflow of $5,000 in each of the next three years before it fails.

You can replace it now with a new machine that costs $20,000 but is much more efficient and will provide a cash flow of $10,000 a year for four years. The discount rate is 15%.

Answer the following questions to decide whether you should replace the machine now or wait.

What is the equivalent annual cost (EAC) of 'only the initial investment' of the new machine?

What is the EAC of the initial investment AND the cash inflow (pay attention to the signs)? (Enter an integer value)

Given the results above, should we wait or replace the machine now? Enter Wait' or Replace

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