It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of ₱85,000 each year for 4 years and then be scrapped for ₱5,000 residual value. The new machine requires an investment of ₱40,000 and would have out-of-pocket costs of ₱79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.
It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of ₱85,000 each year for 4 years and then be scrapped for ₱5,000 residual value. The new machine requires an investment of ₱40,000 and would have out-of-pocket costs of ₱79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of ₱85,000 each year for 4 years and then be scrapped for ₱5,000 residual value. The new machine requires an investment of ₱40,000 and would have out-of-pocket costs of ₱79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.
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