X Company must decide whether to continue using its current equipment or replace
ID: 2574842 • Letter: X
Question
X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment: Current equipment Current sales value Final sales value Operating costs $10,000 3,500 65,000 New equipment Purchase cost Final sales value Operating cost savings $51,000 6,000 9,000 Maintenance work will be necessary on the current equipment in Year 4, costing $4,000. The current equipment wil last for 6 more years; the life of the new equipment is also 6 years. Assuming a discount rate of 696, what is the net present value of replacing the current equipment? 6785 Submit Answer Tries 3/s Previous TriesExplanation / Answer
Year
Particulars
Cash flow
PVF
PV
0
Purchase cost
($51,000.00)
1
($51,000.00)
1-6
Savings in operating cost
$9,000.00
4.9174
$44,256.60
6
Scrap value of New equipment
$6,000.00
0.705
$4,230.00
0
Scrap value of Current equipment
$10,000.00
1
$10,000.00
Net present Value
$7,486.60
Year
Particulars
Cash flow
PVF
PV
0
Purchase cost
($51,000.00)
1
($51,000.00)
1-6
Savings in operating cost
$9,000.00
4.9174
$44,256.60
6
Scrap value of New equipment
$6,000.00
0.705
$4,230.00
0
Scrap value of Current equipment
$10,000.00
1
$10,000.00
Net present Value
$7,486.60
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