Green is considering the replacement of some machinery that has zero book value and a current market value of P28,000. One possible alternative is to invest in new machinery that costs P300,000. The new equipment has a four-year service life and an estimated salvage value of P35,000, will produce annual cash operating savings of P94,000, and will require a P22,000 overhaul in year 3. The company uses straight-line depreciation. Required: Prepare a net-present-value analysis of Green's replacement decision, assuming an 8% hurdle rate and no income taxes. Should the machinery be acquired? Note: Round calculations to 3 decimal places.
Green is considering the replacement of some machinery that has zero book value and a current market value of P28,000. One possible alternative is to invest in new machinery that costs P300,000. The new equipment has a four-year service life and an estimated salvage value of P35,000, will produce annual cash operating savings of P94,000, and will require a P22,000 overhaul in year 3. The company uses straight-line depreciation. Required: Prepare a net-present-value analysis of Green's replacement decision, assuming an 8% hurdle rate and no income taxes. Should the machinery be acquired? Note: Round calculations to 3 decimal places.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Green is considering the replacement of some machinery that has zero book
value and a current market value of P28,000. One possible alternative is to invest in
new machinery that costs P300,000. The new equipment has a four-year service life
and an estimated salvage value of P35,000, will produce annual cash operating savings
of P94,000, and will require a P22,000 overhaul in year 3. The company uses
straight-line depreciation.
Required: Prepare a net-present-value analysis of Green's replacement decision,
assuming an 8% hurdle rate and no income taxes. Should the machinery be acquired?
Note: Round calculations to 3 decimal places.
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