Machine A was purchased last year for $20,000 and had an estimated MV of $2,000

Question

Machine A was purchased last year for $20,000 and had an estimated MV of $2,000 at the end of its six-year life. Annual operating costs are $2,000. The machine will perform satisfactorily over the next five years. A salesman for another company is offering a replacement, Machine B, for $14,000, with an MV of $1,400 after five years. Annual operating costs for Machine B will only be $1,400. A trade-in allowance of $10,400 has been offered for Machine A. If the before- tax MARR is 12% per year, how much is the defender Present Worth?

Explanation / Answer

Answer:

Machine A (Defender):

PWA (12%)=-$10,400 - $2,000 (P/A,12%,5) + $2,000 (P/F,12%,5)

= -$16,475

Machine B (Challenger):

PW B (12%) = -$14,000 - $1,400 (P/A,12%,5) + $10,400 (P/F,12%,5) = -$18,252

Continue with Machine A.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

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