You purchased an asset for $60M, 10 years ago. It currently costs $20M per year to keep
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You purchased an asset for $60M, 10 years ago. It currently costs $20M per year to keep it running (assume that will continue to apply in the future). The salvage value of the old asset is $5M. An equivalent new asset would cost $80M initially plus $7M per year for all maintenance and running costs.
For simplicity, use an infinite study period and assume the annual maintenance and running costs of the old and new machines remain constant forever. For what value of the rate of return, r, would the two options be equally attractive? Answer as a percentage.
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
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