X Company must decide whether to continue using its current equipment or replace

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 will 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? 10855 Submit Answer rrect. Tries 2/5 Previous Tries

Explanation / Answer

0 1 2 3 4 5 6 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Current Sales Value 10000 Purchase cost -51000 Final Sales Value old machine 3500 Final Sales Value New machine 6000 Saving in operating Cost 9000 9000 9000 9000 9000 9000 Manintenance Work -4000 Net Cash Flow -41000 9000 9000 9000 5000 9000 18500 PV Factor 6% 1 0.9434 0.89 0.83962 0.79209 0.74726 0.70496 PV of Cash flow -41000 8490.57 8009.97 7556.57 3960.47 6725.32 13041.8 NPV of Repalcement 6785

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