On January 1, 2021, X Company bought a machine for $40,000. It's now January 1, 2022, and management is disappointed that 2021 operating costs with the machine were $33,000. Since they are expecting future operating costs to continue to be $33,000 a year, they are considering replacing the machine with a new one. Although the new machine will cost $47,000, operating costs with the new machine will decrease by $9,000 each year. Both machines will last for 6 more years. The current machine can be sold immediately for $10,000 but will have no salvage value at the end of 6 years. The new machine will have a salvage value of $4,500 at the end of 6 years. Assuming a discount rate of 8%, what is the net present value of replacing the current machine with the new one?

On January 1, 2021, X Company bought a machine for $40,000. It's now January 1, 2022, and management is disappointed that 2021 operating costs with the machine were $33,000. Since they are expecting future operating costs to continue to be $33,000 a year, they are considering replacing the machine with a new one. Although the new machine will cost $47,000, operating costs with the new machine will decrease by $9,000 each year. Both machines will last for 6 more years. The current machine can be sold immediately for $10,000 but will have no salvage value at the end of 6 years. The new machine will have a salvage value of $4,500 at the end of 6 years. Assuming a discount rate of 8%, what is the net present value of replacing the current machine with the new one?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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