Acme Company is considering whether to replace an old machine with a new machine. The new machine would cost $68,000, have a useful life of 12 years, and a salvage value of $5,000. The annual operating costs of the new machine would be $7,000 per year. If Acme purchases the new machine, it can sell the old machine for $15,000. Acme's other option is to rebuild the old machine at a cost of $33,000. The rebuilt machine would have a useful life of 12 years and a salvage value of $2,000. The annual operating costs of the rebuilt machine would be $11,000 per year. Acme uses a discount rate of 8% to make capital budgeting decisions. Using net present value analysis, how much better (or worse) off will Acme be if it replaces the old machine with a new machine rather than rebuilding the old machine?

Acme Company is considering whether to replace an old machine with a new machine. The new machine would cost $68,000, have a useful life of 12 years, and a salvage value of $5,000. The annual operating costs of the new machine would be $7,000 per year. If Acme purchases the new machine, it can sell the old machine for $15,000. Acme's other option is to rebuild the old machine at a cost of $33,000. The rebuilt machine would have a useful life of 12 years and a salvage value of $2,000. The annual operating costs of the rebuilt machine would be $11,000 per year. Acme uses a discount rate of 8% to make capital budgeting decisions. Using net present value analysis, how much better (or worse) off will Acme be if it replaces the old machine with a new machine rather than rebuilding the old machine?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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