An old machine may be repaired at a cost of P 9,000 or it may be replaced by a modern machine of the same size at a cost of P 57,000. The present net salvage value of the old machine is P 13,000. It is estimated that the repaired machine will last for 5 more years with a net salvage value of P 10,000 and that of the new machine will be P 15,000 after 30yrs. The annual cost of maintenance and operation on the repaired machine will be P 1,500 more per year than for the new machine. Assuming a return of 8% and depreciation on a straight line basis, determine whether it is more economical to repair the machine or replace it instead. Use ROR method.
An old machine may be repaired at a cost of P 9,000 or it may be replaced by a modern machine of the same size at a cost of P 57,000. The present net salvage value of the old machine is P 13,000. It is estimated that the repaired machine will last for 5 more years with a net salvage value of P 10,000 and that of the new machine will be P 15,000 after 30yrs. The annual cost of maintenance and operation on the repaired machine will be P 1,500 more per year than for the new machine. Assuming a return of 8% and depreciation on a straight line basis, determine whether it is more economical to repair the machine or replace it instead. Use ROR method.
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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- An old machine may be repaired at a cost of P 9,000 or it may be replaced by a modern machine of the same size at a cost of P 57,000. The
present net salvage value of the old machine is P 13,000. It is estimated that the repaired machine will last for 5 more years with a net salvage value of P 10,000 and that of the new machine will be P 15,000 after 30yrs. The annual cost of maintenance and operation on the repaired machine will be P 1,500 more per year than for the new machine. Assuming a return of 8% anddepreciation on a straight line basis, determine whether it is more economical to repair the machine or replace it instead. Use ROR method.
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