You are the CEO of Megah Holding. Four years ago, your company purchased machine XYZ. Because of increasing maintenance costs for this equipment, a new piece of machinery is being considered for the assembly line. The cost characteristics of the defender and challenger are shown in TABLE Q3. Suppose RM 6000 Market Value (MV) is available now for the defender. Using a before tax MARR of 15%, as a CEO decide whether you will prefer to maintain the old machine or replace it with a new machine? Justify your answer. TABLE Q3 Defender Challenger Original cost RM 9000 Purchase price RM 11 000 Maintenance cost RM 500 Maintenance RM 150 / year (year 1) (increase RM cost 100/year) Useful life (years) 9 Useful life (years) 5 MV at the end of MV at the end of RM 3000 useful life useful life

You are the CEO of Megah Holding. Four years ago, your company purchased machine XYZ. Because of increasing maintenance costs for this equipment, a new piece of machinery is being considered for the assembly line. The cost characteristics of the defender and challenger are shown in TABLE Q3. Suppose RM 6000 Market Value (MV) is available now for the defender. Using a before tax MARR of 15%, as a CEO decide whether you will prefer to maintain the old machine or replace it with a new machine? Justify your answer. TABLE Q3 Defender Challenger Original cost RM 9000 Purchase price RM 11 000 Maintenance cost RM 500 Maintenance RM 150 / year (year 1) (increase RM cost 100/year) Useful life (years) 9 Useful life (years) 5 MV at the end of MV at the end of RM 3000 useful life useful life

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

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Raiders Restaurant is considering the purchase of a $10,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the initial cash outflow for the grill (e.g. the time 0 cash flow). (Enter a negative value and round to 2 decimals)
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