An ice plant bought a freon compressor. The estimated life of the compressor is 15 years. An investigation reveals that the new compressors are very much improved during that time. However, this compressor is still in good condition. It can be sold for an estimated price of $1,200 or it can be kept and operated for 2 more years. A new compressor of the same capacity may be purchased to replace it at a cost completely installed for $18,000. If the old machine operates at $1,200 per year and the new machine at $600 per year, and the salvage value is 10% of first cost, what is the rate of return on additional investment and should it be replaced?
An ice plant bought a freon compressor. The estimated life of the compressor is 15 years. An investigation reveals that the new compressors are very much improved during that time. However, this compressor is still in good condition. It can be sold for an estimated price of $1,200 or it can be kept and operated for 2 more years. A new compressor of the same capacity may be purchased to replace it at a cost completely installed for $18,000. If the old machine operates at $1,200 per year and the new machine at $600 per year, and the salvage value is 10% of first cost, what is the rate of return on additional investment and should it be replaced?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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An ice plant bought a freon compressor. The estimated life of the compressor is 15 years. An investigation reveals that the new compressors are very much improved during that time. However, this compressor is still in good condition. It can be sold for an estimated price of $1,200 or it can be kept and operated for 2 more years. A new compressor of the same capacity may be purchased to replace it at a cost completely installed for $18,000. If the old machine operates at $1,200 per year and the new machine at $600 per year, and the salvage value is 10% of first cost, what is the rate of
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