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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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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? Worse off by $7,650 O Worse off by $9,665 Better off by $11.335 Better off by $9,350 None of the above
Transcribed Image Text: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? Worse off by $7,650 O Worse off by $9,665 Better off by $11.335 Better off by $9,350 None of the above
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