A three-year-old machine purchased for $130,000 is not able to meet today's market demands. The machine can be sold to a sub-contracting company for $40,000. The current machine will have an annual operating cost of $85,000 and salvage value of $30,000 in three years. The new machine which will serve the company now for at least 8 years, will cost $220,000. Its salvage value will be $10,000 at the end of eighth year. It will have an estimated operating cost of $65,000 per year. You are required to perform a replacement analysis at 12% per year and decide on the best course of action.
A three-year-old machine purchased for $130,000 is not able to meet today's market demands. The machine can be sold to a sub-contracting company for $40,000. The current machine will have an annual operating cost of $85,000 and salvage value of $30,000 in three years. The new machine which will serve the company now for at least 8 years, will cost $220,000. Its salvage value will be $10,000 at the end of eighth year. It will have an estimated operating cost of $65,000 per year. You are required to perform a replacement analysis at 12% per year and decide on the best course of action.
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 three-year-old machine purchased for $130,000 is not able to meet today's market demands. The machine can be sold to a sub-contracting company for $40,000. The current machine will have an annual operating cost of $85,000 and salvage value of $30,000 in three years. The new machine which will serve the company now for at least 8 years, will cost $220,000. Its salvage value will be $10,000 at the end of eighth year. It will have an estimated operating cost of $65,000 per year. You are required to perform a replacement analysis at 12% per year and decide on the best course of action.
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