Achtung Co uses 3machines to finalize the product. The machines got outdated and it has been proposed to replace them with a new one. Each can be sold for 4500$ at the end of the year. If they have been sold now it would be 6000$ for each. Each of three new machineries have the expected life of 10 years and value of Q at the end. Depreciation is 30% out of the value and is subject to tax. If Achtung buys them now they will cost 18000$ each, two years later the price will decrease to 12500$. Annual costs 5000$ per machine. Tax rate= 0.4. Cost of capital 0.18. 1) Find Net present Value of each approach (replace/not replace)

Achtung Co uses 3machines to finalize the product. The machines got outdated and it has been proposed to replace them with a new one. Each can be sold for 4500$ at the end of the year. If they have been sold now it would be 6000$ for each. Each of three new machineries have the expected life of 10 years and value of Q at the end. Depreciation is 30% out of the value and is subject to tax. If Achtung buys them now they will cost 18000$ each, two years later the price will decrease to 12500$. Annual costs 5000$ per machine. Tax rate= 0.4. Cost of capital 0.18. 1) Find Net present Value of each approach (replace/not replace)

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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Kendra Company is considering replacing an old machine. The old machine was purchased for $100,700 and has a book value of $40,700 and should last four more years with no salvage value. The company believes that it could currently sell the old machine for $20,700. The new machine cost $80,700 and will have a 4-year life and a $10,700 salvage value. Currently, it costs $20,700 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, should Kendra Company replace the old machine?
Sooky has a spotter truck with a book value of $46,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero-salvage value. iSooky can purchase a new spotter truck for $126,000 and receive $31,600 in return for trading in its old spotter truck. The old spotter truck has variable manufacturing costs of $81,000 per year. The new spotter truck will reduce variable manufacturing costs by $25,600 per year over the five-year life of the new spotter truck. The total increase or decrease in income by replacing the current spotter truck with the new truck is:
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