A 3 year-old a computer-controlled fabric cutting machine, which had burchasing price, has a current market (trade-in) value of $12,000 and O&M costs of $3,000, increasing by $1,000 per year. The machine is have an immediate repair that costs $2,000. The estimated market va expected to decline by 15% annually (going forward). The machine ca another 7 years at most. The new machine has a $40,000 purchasing machine's O&M cost is estimated to be $5,000 for the first year, decr annual rate of $100 thereafter. The firm's MARR is 15%. Assume a un AEC(15%) for both machines (both the current and replacement mach This is an infinite horizon decision problem). If the new machine's economic service life is four years, how much is

A 3 year-old a computer-controlled fabric cutting machine, which had burchasing price, has a current market (trade-in) value of $12,000 and O&M costs of $3,000, increasing by $1,000 per year. The machine is have an immediate repair that costs $2,000. The estimated market va expected to decline by 15% annually (going forward). The machine ca another 7 years at most. The new machine has a $40,000 purchasing machine's O&M cost is estimated to be $5,000 for the first year, decr annual rate of $100 thereafter. The firm's MARR is 15%. Assume a un AEC(15%) for both machines (both the current and replacement mach This is an infinite horizon decision problem). If the new machine's economic service life is four years, how much is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A 3 year-old a computer-controlled fabric cutting machine, which had a $25,000
purchasing price, has a current market (trade-in) value of $12,000 and expected
O&M costs of $3,000, increasing by $1,000 per year. The machine is required to
have an immediate repair that costs $2,000. The estimated market values are
expected to decline by 15% annually (going forward). The machine can be used for
another 7 years at most. The new machine has a $40,000 purchasing price. The new
machine's O&M cost is estimated to be $5,000 for the first year, decreasing at an
annual rate of $100 thereafter. The firm's MARR is 15%. Assume a unique minimum
AEC(15%) for both machines (both the current and replacement machine).
(This is an infinite horizon decision problem).
If the new machine's economic service life is four years, how much is saved in PEC
(present equivalent cost, so at n=0) by keeping the defender only for one extra year
when marginal analysis dictates (so PEC of savings by choosing jo correctly).
a) Between $8,200 and $8,400
b) Between $4,200 and $4,400
c) Between $3,200 and $3,400
d) Between $6,200 and $6,400
e) None of the answers are correct
f) Between $5,200 and $5,400

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