Question 14 0.35 pts Acme Company has some outdated equipment that must be replaced or overhauled. New equipment would cost $400,000, have a useful life of 10 years, and a salvage value of $80,000. The annual operating costs of the new equipment would be $90,000 per year. Acme can sell the old equipment for $70,000. Acme's other option is to overhaul the old equipment at a cost of $250,000. The refurbished equipment would have a useful life of 10 years and a salvage value of $30,000. The annual operating costs of the refurbished equipment would be $110,000 per year. Acme uses a 10% discount rate to make capital budgeting decisions. Based on a net present value analysis, what is the financial advantage or disadvantage of overhauling rather than replacing the old equipment? $42,200 advantage O $62,200 disadvantage O$42,200 disadvantage $62,200 advantage
Question 14 0.35 pts Acme Company has some outdated equipment that must be replaced or overhauled. New equipment would cost $400,000, have a useful life of 10 years, and a salvage value of $80,000. The annual operating costs of the new equipment would be $90,000 per year. Acme can sell the old equipment for $70,000. Acme's other option is to overhaul the old equipment at a cost of $250,000. The refurbished equipment would have a useful life of 10 years and a salvage value of $30,000. The annual operating costs of the refurbished equipment would be $110,000 per year. Acme uses a 10% discount rate to make capital budgeting decisions. Based on a net present value analysis, what is the financial advantage or disadvantage of overhauling rather than replacing the old equipment? $42,200 advantage O $62,200 disadvantage O$42,200 disadvantage $62,200 advantage
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 14
0.35 pts
Acme Company has some outdated equipment that must be replaced or overhauled. New
equipment would cost $400,000, have a useful life of 10 years, and a salvage value of
$80,000. The annual operating costs of the new equipment would be $90,000 per year. Acme
can sell the old equipment for $70,000. Acme's other option is to overhaul the old equipment
at a cost of $250,000. The refurbished equipment would have a useful life of 10 years and a
salvage value of $30,000. The annual operating costs of the refurbished equipment would be
$110,000 per year. Acme uses a 10% discount rate to make capital budgeting decisions.
Based on a net present value analysis, what is the financial advantage or disadvantage of
overhauling rather than replacing the old equipment?
$42,200 advantage
O $62,200 disadvantage
O$42,200 disadvantage
$62,200 advantage
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