2| Randi Corp. is considering the replacement of some machinery that has zero book value and a current market value of $3,800. One possible alternative is to invest in new machinery that costs $31,000. The new equipment has a four-year service life and an estimated salvage value of $4,500, will produce annual cash operating savings of $10,400, and will require a $3,200 overhaul in year 3. The company uses straight-line depreciation. FV of $1 at 8% 1.080 1.166 1.260 1.360 1.469 FV of an ordinary annuity at 8% 1.000 2.080 3.246 4.506 5.867 7.336 PV of $1 at 8% 0.926 0.857 PV of an ordinary annuity at 8% 0.926 Year 1.783 0.794 2.577 0.735 0.681 0.630 3.312 3.993 4.623 6 1.587 Required: Prepare a net-present-value analysis of Randi's replacement decision, assuming a(n) 8% hurdle rate and no income taxes. Should the machinery be acquired? (Negative amounts should be indicated by a minus sign. Round your final answers to the nearest dollar.) 123456
2| Randi Corp. is considering the replacement of some machinery that has zero book value and a current market value of $3,800. One possible alternative is to invest in new machinery that costs $31,000. The new equipment has a four-year service life and an estimated salvage value of $4,500, will produce annual cash operating savings of $10,400, and will require a $3,200 overhaul in year 3. The company uses straight-line depreciation. FV of $1 at 8% 1.080 1.166 1.260 1.360 1.469 FV of an ordinary annuity at 8% 1.000 2.080 3.246 4.506 5.867 7.336 PV of $1 at 8% 0.926 0.857 PV of an ordinary annuity at 8% 0.926 Year 1.783 0.794 2.577 0.735 0.681 0.630 3.312 3.993 4.623 6 1.587 Required: Prepare a net-present-value analysis of Randi's replacement decision, assuming a(n) 8% hurdle rate and no income taxes. Should the machinery be acquired? (Negative amounts should be indicated by a minus sign. Round your final answers to the nearest dollar.) 123456
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question

Transcribed Image Text:2|
Randi Corp. is considering the replacement of some machinery that has zero book value and a
current market value of $3,800. One possible alternative is to invest in new machinery that costs
$31,000. The new equipment has a four-year service life and an estimated salvage value of $4,500,
will produce annual cash operating savings of $10,400, and will require a $3,200 overhaul in year 3.
The company uses straight-line depreciation.
FV of $1 at
8%
PV of $1 at
8%
FV of an ordinary annuity at
8%
1.000
2.080
3.246
4.506
PV of an ordinary annuity at
8%
0.926
1.783
2.577
3.312
3.993
Year
1
1.080
0.926
2
3
4
1.166
1.260
0.857
0.794
1.360
1.469
1.587
0.735
0.681
0.630
5.867
7.336
4.623
Required:
Prepare a net-present-value analysis of Randi's replacement decision, assuming a(n) 8% hurdle rate
and no income taxes. Should the machinery be acquired? (Negative amounts should be indicated
by a minus sign. Round your final answers to the nearest dollar.)
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