A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller company internationally for $43,000. The upgraded machine will have an annual operating cost of $79,000 per year and a $29,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $225,000. Its salvage value will be $53,000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 10% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years.
A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller company internationally for $43,000. The upgraded machine will have an annual operating cost of $79,000 per year and a $29,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $225,000. Its salvage value will be $53,000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 10% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 12MC
Related questions
Question
![A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller
company internationally for $43,000. The upgraded machine will have an annual operating cost of $79,000 per year and a $29,000 salvage value in 3 years. If
upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other
product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $225,000. Its salvage value will be $53,000 for
years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at
10% per year using a specified 3-year planning horizon.
a) Determine if the current machine should be replaced now or 3 years from now.
b) Once decided, determine the equivalent AW for the next three years.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F755db565-f290-4e55-87bf-6dfa2e74954f%2F49a95f3d-9164-4588-9bdf-c0affa192705%2Fa1g30l3_processed.png&w=3840&q=75)
Transcribed Image Text:A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller
company internationally for $43,000. The upgraded machine will have an annual operating cost of $79,000 per year and a $29,000 salvage value in 3 years. If
upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other
product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $225,000. Its salvage value will be $53,000 for
years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at
10% per year using a specified 3-year planning horizon.
a) Determine if the current machine should be replaced now or 3 years from now.
b) Once decided, determine the equivalent AW for the next three years.
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