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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 het present value of the cash flows associated with keeping the existing machine?

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 het present value of the cash flows associated with keeping the existing machine?

Essentials Of Investments
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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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 Existing Machine $ 15,000 $ 6,000 $5,000 $ 11,000 $ 2,000 $ 1,000 New Machine $ 22,000 Annual cash operating costs Salvage value (now) Salvage value (eight years from now) Click here to view Exhibit 12B-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? $7,000 $ 6,000
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 Existing Machine $ 15,000 $ 6,000 $5,000 $ 11,000 $ 2,000 $ 1,000 New Machine $ 22,000 Annual cash operating costs Salvage value (now) Salvage value (eight years from now) Click here to view Exhibit 12B-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? $7,000 $ 6,000
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