Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs associated with the two alternatives are summarized as follows: Existing Machine $ 15,000 $ 6,000 Purchase cost (new) Remaining book value. Overhaul needed now $5,000 Annual cash operating costs $ 10,500 $ 7,000 Salvage value (now) $ 2,000 Salvage value (eight years from now) $ 1,000 $ 6,000 Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Assuming a discount rate of 19%, what is the net present value of the cash flows associated with keeping the existing machine? Multiple Choice O $(44,268) O $(61,268) $(40,268) $(46,268) New Machine $ 22,000
Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs associated with the two alternatives are summarized as follows: Existing Machine $ 15,000 $ 6,000 Purchase cost (new) Remaining book value. Overhaul needed now $5,000 Annual cash operating costs $ 10,500 $ 7,000 Salvage value (now) $ 2,000 Salvage value (eight years from now) $ 1,000 $ 6,000 Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Assuming a discount rate of 19%, what is the net present value of the cash flows associated with keeping the existing machine? Multiple Choice O $(44,268) O $(61,268) $(40,268) $(46,268) New Machine $ 22,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vikram
Transcribed Image Text:Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs
associated with the two alternatives are summarized as follows:
Purchase cost (new)
Remaining book value
Overhaul needed now
Multiple Choice
Annual cash operating costs
Salvage value (now)
Salvage value (eight years from now)
Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.
If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight
years. Assuming a discount rate of 19%, what is the net present value of the cash flows associated with keeping the existing machine?
O
$(44,268)
O $(61,268)
O $(40,268)
O
Existing
Machine
$ 15,000
$ 6,000
$ 5,000
$ 10,500
$ 2,000
$ 1,000
$(46,268)
New Machine
$ 22,000
$ 7,000
$ 6,000
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