1. Your company currently owns a machine that is costing you $60.000 per year. You are considering replacing it with a new machine that would have a first cost of $60.000, and annual operating costs of $30,000 per year for three years. You have received three different estimates of the eventual salvage value of the new machine: $10,000: $15,000; and $20,000. If your company's minimum acceptable rate of return is 12% per year, is the decision of whether to replace the machine sensitive to the estimated salvage value? Solution: No
1. Your company currently owns a machine that is costing you $60.000 per year. You are considering replacing it with a new machine that would have a first cost of $60.000, and annual operating costs of $30,000 per year for three years. You have received three different estimates of the eventual salvage value of the new machine: $10,000: $15,000; and $20,000. If your company's minimum acceptable rate of return is 12% per year, is the decision of whether to replace the machine sensitive to the estimated salvage value? Solution: No
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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