Your company needs a machine for the next seven years, and you have two choices (assume an annual interest rate of 15%).
Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful life of 7 years and a salvage value of $15,000.
Machine B costs $150,000 and has an annual operating cost of $30,000. Machine B has a useful life of 5 years and no salvage value. However, the life of Machine B can be exteded by two years with a certain amount of investment. if Machine B's life is extended, it will still cost $30,000 annually to operate and still have no salvage value.
What would you pay at the end of year 5 to extend the life of Machine B by two years?
Your company needs a machine for the next seven years, and you have two choices (assume an annual interest rate of 15%).
Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful life of 7 years and a salvage value of $15,000.
Machine B costs $150,000 and has an annual operating cost of $30,000. Machine B has a useful life of 5 years and no salvage value. However, the life of Machine B can be exteded by two years with a certain amount of investment. if Machine B's life is extended, it will still cost $30,000 annually to operate and still have no salvage value.
What would you pay at the end of year 5 to extend the life of Machine B by two years?
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Related questions
The Crockett Land Winery must replace its present grape-pressing equipment. The two alternatives are the Quik-Skwish and the Stomp-Master. The annual operating costs increase by 15% each year as the age of the machine. If the interest rate is 9%, what is the net present cost for the Quik-Skwish machine?
| Quick-Skwish | Stomp-Master | |
| First cost | $350,000 | $500,000 |
| Annual operating costs | 30,000 | 25,000 |
| Salvage value | 35,000 | 50,000 |
| Useful life, in years | 5 | 10 |
