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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

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 3E
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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
Transcribed Image Text: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
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