Four years ago a company purchased a new copy machine. Due to deterioration, soo

Question

Four years ago a company purchased a new copy machine. Due to deterioration, soon a new copy machine will be needed. The annual maintenance cost for the existing machine is $1,600 and increasing 100 each year. An identical copy machine can be purchased now to replace the presently owned assets. The presently owned copy machine losses each year $10,000 in resale value, compare the assets with at 10% per year and compute when the presently owed should be replace.

Same model as presently owned

Present value (when new)                         $75,000

Present value of new copy machine        $85,000

Annual cost (old copy machine)                    1,100

Annual cost (new copy machine)                  1,600 and increasing    

Salvage value (both machine)                      15,000

Life in years (both machine)                                 6         

workout the problems step by steps

Explanation / Answer

Since the Net cash outflow is -ve even on 6th year , the new machine should be purchased only on 7th year.

Year Y0 Y1 Y2 Y3 Y4 Y5 Y6 Cost of the old machine 75000 Depreciation 0 10000 10000 10000 10000 10000 10000 Annual Cost 1600 1700 1800 1900 2000 2100 Salvage Value 15000 Net Cash Flow -75000 8400 8300 8200 23100 8000 7900 Net cash Outflow -11100

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.