7) purchase a new one or upgrade the existing machine. The existing machine has a remaining life of 5 years and is expected to have a salvage value of $20,000 at the end of its useful life. Operating and maintenance costs have been $25,000 per year. The company uses an MARR of 10% per year compounded annually for making economic decisions. Alternative 1. Á new machine is purchased, and the existing machine is sold at its market value of $50,000. A new machine costs $150,000, has an annual O&M cost of $15,000, and a salvage value of $25,000 at the end of 5 years. Alternative 2. The existing machine is upgraded, and the upgrades are expected to cost $60,000 now. The upgraded machine's salvage value and annual O&M costs are expected to remain the same as that of the existing machine. To meet increased demand for its product, a company can either sell the existing machine and a) Compute the present worth for Alternative 1. b) Compute the present worth for Alternative 2. c) Based on the above calculations, which option would you recommend? Why?
7) purchase a new one or upgrade the existing machine. The existing machine has a remaining life of 5 years and is expected to have a salvage value of $20,000 at the end of its useful life. Operating and maintenance costs have been $25,000 per year. The company uses an MARR of 10% per year compounded annually for making economic decisions. Alternative 1. Á new machine is purchased, and the existing machine is sold at its market value of $50,000. A new machine costs $150,000, has an annual O&M cost of $15,000, and a salvage value of $25,000 at the end of 5 years. Alternative 2. The existing machine is upgraded, and the upgrades are expected to cost $60,000 now. The upgraded machine's salvage value and annual O&M costs are expected to remain the same as that of the existing machine. To meet increased demand for its product, a company can either sell the existing machine and a) Compute the present worth for Alternative 1. b) Compute the present worth for Alternative 2. c) Based on the above calculations, which option would you recommend? Why?
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Transcribed Image Text:7)
purchase a new one or upgrade the existing machine.
The existing machine has a remaining life of 5 years and is expected to have a salvage value of $20,000 at the
end of its useful life. Operating and maintenance costs have been $25,000 per year. The company uses an
MARR of 10% per year compounded annually for making economic decisions.
Alternative 1. Á new machine is purchased, and the existing machine is sold at its market value of $50,000. A
new machine costs $150,000, has an annual O&M cost of $15,000, and a salvage value of $25,000 at the end
of 5 years.
Alternative 2. The existing machine is upgraded, and the upgrades are expected to cost $60,000 now. The
upgraded machine's salvage value and annual O&M costs are expected to remain the same as that of the existing
To meet increased demand for its product, a company can either sell the existing machine and
machine.
a)
Compute the present worth for Alternative 1.
b)
Compute the present worth for Alternative 2.
c)
Based on the above calculations, which option would you recommend? Why?
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