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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Question
A high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model having a purchase price of $42,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if purchased, has a useful life of not more than two years. The projected resale values and operating and maintenance costs for the challenger and the defender are shown in the accompanying table on a year-by-year basis. If the before-tax MARR is 15%, when should the old assembly machine be replaced? Use the following data table for your analysis.
Transcribed Image Text:Challenger
Defender
Market 0&M
Market
O&M
Year
Value
Costs
Value
Costs
$42,500
$25,000
1
31,000 $10,000
17,000 $14,000
2
25,000
12,500
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