A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now for $90,000 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $203,500. Its salvage value will be $50,000 for years 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values? The AW value of the defender is $− and the AW value of the challenger is $−
A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now for $90,000 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $203,500. Its salvage value will be $50,000 for years 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values? The AW value of the defender is $− and the AW value of the challenger is $−
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 machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now for $90,000 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $203,500. Its salvage value will be $50,000 for years 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values?
The AW value of the defender is $− and the AW value of the challenger is $− .
Transcribed Image Text:A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now
for $90,000 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year
and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The
replacement, which will serve the company now and for at least 8 years, will cost $203,500. Its salvage value will be $50,000 for years
1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company
asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently
owned machine now, or do it 3 years from now? What are the AW values?
The AW value of the defender is $-
|and the AW value of the challenger is $-
The company should replace the defender 3 years from now v
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