5. 1. A five-year-old machine, Machine X,purchased for $100000 is not able to meettoday's market demands. Its operating cost ishigher than expected, so it will be used foronly 4 more years. Its operating cost this yearwill be $40,000, increasing by $2000 per yearthrough the end of its useful life. Thechallenger, Machine Y will cost $140,000 witha $60,000 salvage value after its 10-year ESL.Its operating cost is expected to be $10,000for year 1, increasing by $500 per yearthereafter. What is the market value formachine X that would make the two machinesequally attractive at an interest rate of 12%per year?

Given, Machine X : Purchased years oldPurchased for $100,000It will be used for 4 years…

1. A five-year-old machine, Machine X, purchased for $100000 is not able to meet today's market demands. Its operating cost is higher than expected, so it will be used for only 4 more years. Its operating cost this year

1. A five-year-old machine, Machine X, purchased for $100000 is not able to meet today's market demands. Its operating cost is higher than expected, so it will be used for only 4 more years. Its operating cost this year

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. A five-year-old machine, Machine X,
purchased for $100000 is not able to meet
today's market demands. Its operating cost is
higher than expected, so it will be used for
only 4 more years. Its operating cost this year
will be $40,000, increasing by $2000 per year
through the end of its useful life. The
challenger, Machine Y will cost $140,000 with
a $60,000 salvage value after its 10-year ESL.
Its operating cost is expected to be $10,000
for year 1, increasing by $500 per year
thereafter. What is the market value for
machine X that would make the two machines
equally attractive at an interest rate of 12%
per year?

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