One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just two years earlier for $50,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $24,000, after which operating costs will be $70,000 a year. It will also require a maintenance check in the third year that is estimated to cost $3,500. A new machine will cost $85,000, but it will be more efficient than the repaired machine, with annual operating costs of only $52,000. Both the repaired machine and the new machine will last for six years, at which time the repaired one would be worthless, and new one would be worth $6,500. If it is not repaired, the damaged machine can be sold immediately for $5,000. Assuming a discount rate of 4%, what is the net present value of repairing the damaged machine instead of buying the new machine?
One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just two years earlier for $50,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $24,000, after which operating costs will be $70,000 a year. It will also require a maintenance check in the third year that is estimated to cost $3,500.
A new machine will cost $85,000, but it will be more efficient than the repaired machine, with annual operating costs of only $52,000.
Both the repaired machine and the new machine will last for six years, at which time the repaired one would be worthless, and new one would be worth $6,500. If it is not repaired, the damaged machine can be sold immediately for $5,000.
Assuming a discount rate of 4%, what is the
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