Motor City Rentals is trying to decide whether it should keep its existing car detailing machine or purchase a new one that has state of the art technological advancements (which translate into cost savings) over the existing machine. Information on each machine follows: - Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs. 10 yrs. The incremental cost to purchase the new machine is Group of answer choices $11,000 $18,000. $20,000. $13,000.
Motor City Rentals is trying to decide whether it should keep its existing car detailing machine or purchase a new one that has state of the art technological advancements (which translate into cost savings) over the existing machine. Information on each machine follows: - Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs. 10 yrs. The incremental cost to purchase the new machine is Group of answer choices $11,000 $18,000. $20,000. $13,000.
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
Related questions
Question
Motor City Rentals is trying to decide whether it should keep its existing car detailing machine or purchase a new one that has state of the art technological advancements (which translate into cost savings) over the existing machine. Information on each machine follows:
| - |
Old machine
|
New machine
|
|---|---|---|
| Original cost |
$9,000
|
$20,000
|
| Accumulated |
5,000
|
0
|
| Annual cash operating costs |
9,000
|
4,000
|
| Current salvage value of old machine |
2,000
|
|
| Salvage value in 10 years |
500
|
1,000
|
| Remaining life |
10 yrs.
|
10 yrs.
|
The incremental cost to purchase the new machine is
Group of answer choices
$11,000
$18,000.
$20,000.
$13,000.
Expert Solution
Step 1
Capital budgeting techniques are used to understand if the investment decision will add value to the firm. In order to understand this, incremental cash flows are determined for the project and then Net present value or Internal Rate of return is calculated.
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