X Company is considering replacing one of its machines in order to save operatin

Question

X Company is considering replacing one of its machines in order to save operating costs. Operating costs with the current machine are $68,000 per year; operating costs with the new machine are expected to be $50,000 per year. The new machine will cost $67,000 and will last for 5 years, at which time it can be sold for $1,000. The current machine will also last for 5 more years but will not be worth anything at that time. It cost $40,000 four years ago, but its current disposal value is only $4,000. Assuming a discount rate of 7%, what is the incremental net present value of replacing the current machine with the new machine?

Explanation / Answer

X Company is considering replacing one of its machines in order to save operatin

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