Duluth Medico purchased a digital image processing machine three years ago at a cost of $50,000. The machine had an expected life of eight years at the time of purchase and an expected salvage value of $6,000 at the end of the eight years. The old machine has been slow at handling the increased business volume, so management is considering replacing the machine.
A new machine can be purchased for $89,000, including installation costs. Over its five-year life, the machine will reduce cash operating expenses by $10,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless.
The old machine can be sold today for $11,000. The firm`s interest rate for project justification is known to be 14%. The firm does not expect a better machine (other than the current challenger) to be available for the next five years. Assuming that the economic service life of the new machine, as well as the remaining useful life of the old machine, is five years, what is the PRESENT WORTH of the preferred alternative? The answer could be negative. Ignore the effect of taxes and depreciation.â

Question

An old machine that originally cost $9,500 thus far hasaccumulated depreciation of $1,900. The remaining useful life isfour years, with no salvage value at the end of its useful life. Anew machine is now available that costs $8,500, with a useful lifeof five years and no residual value. The old machine could be soldnow for $4,900. The annual cash operating costs for the old machineare $5,000, but for the new machine they would be only $2,500.Gross revenue from the products would be $12,000 annually foreither machine. The company should
	keep the old machine to avoid an $8,500 decrease in cash.
	replace the old machine.
	keep the old machine to avoid a $4,900 loss on its disposal.
	keep the old machine to avoid a $2,700 loss on its disposal.

Unlock all answers

Related questions

Weekly leaderboard