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?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company owns a 5-year-old turret lathe that has a book value of $25,000. The present market value for the lathe is $16,000. The expected decline in market value is $2,000/year to a minimum market value of $4,000; maintenance plus operating costs for the lathe equal $4,200/year.A new turret lathe can be purchased for $45,000 and will have an expected life of 8 years. The market value for the turret lathe is expected to equal$45,000(0.70)k at the end of year k. Annual maintenance and operating cost is expected to equal $1,600. Based on a 12% MARR, should the old lathe be replaced now? Use an equivalent uniform annual cost comparison, a planning horizon of 7 years, and the cash flow approach.
An engineer with Haliburton calculated the AW values shown for retaining a presently owned machine additional years. A challenger has an economic service life of 7 years with AW = $-86,000 per year. Assuming all future costsremain as estimated for the analysis, (a) when should the company replace the defender and with what machine, and (b) when should the companypurchase the challenger? The MARR is 12% per year. Assume used machines like the one presently owned will always be available.
K Company has purchased a new machine costing $27,000 and the machine is expected to reduce the operating expenses by $7,000 every year. The useful life of machine is 5 years and the machine is expected to have a zero-scrap! value at the end of its useful life. The company's required rate of return is 12%. Calculate the Net Present Value (NPV) of the machine. (Round intermediate calculations to 3 decimal places and final answer to the nearest dollar.)
Kunkel Company is considering the purchase of a $29,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. Calculate the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the net present value of the investment in the machine. Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s). Net present value
A replacement electric motor is being considered for purchase. It is capable of providing 200 hp. The pertinent data are follows: Cost - 3200 dollars Maintenance Cost per year - 50 dollars Life expectancy - 14years Salvage value after - 1,429.93 dollars The motor is used for 400 h/year and the cost of electricity is 0.0 dollars/kWh. What is most nearly the effective annual cost using an interest rate of 10%
The management of Kunkel Company is considering the purchase of a $29,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s).) Net present value
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $117,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $45,000. The machine would require a $10,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $34,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? I. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. II. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included…
please help me, thank you
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Rework the given problem, assuming the following additional information:• The machine is classified as a seven-year MACRS recovery period. Thetax rate is 40%. and the after-tax MARR is 10%.
Calculate the present worth of all costs for a newly acquired machine with an initial cost of $32,000, no trade-in value, a life of 14 years, and an annual operating cost of $17,000 for the first 3 years, increasing by 10% per year thereafter. Use an interest rate of 10% per year. The present worth of all costs for a newly acquired machine is determined to be $ [

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