Machine A was purchased last year for $20,000 and had an estimated MV of $2,000 at the end of its six-year life. Annual operating costs are $2,000. The machine will perform satisfactorily over the next five years. A salesperson for another company is offering a replacement, Machine B, for $14,000, with an MV of $1,400 after five years. Annual operating costs for Machine B will only be $1,400. A trade-in allowance of $10,400 has been offered for Machine A. If the before-tax MARR is 12% per year, should you buy the new machine? Solve, (a) No, continue with Machine A. (b) Yes, purchase Machine B.

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
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Machine A was purchased last year for $20,000 and had an estimated MV of $2,000 at the end of its six-year life. Annual operating costs are $2,000. The machine will perform satisfactorily over the next five years. A salesperson for another company is offering a replacement, Machine B, for $14,000, with an MV of $1,400 after five years. Annual operating costs for Machine B will only be $1,400. A trade-in allowance of $10,400 has been offered for Machine A. If the before-tax MARR is 12% per year, should you buy the new machine? Solve, (a) No, continue with Machine A. (b) Yes, purchase Machine B. 

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