Question 1 1/ 1 point A commuter airline company is considering replacing on of

Question

Question 1 1/ 1 point A commuter airline company is considering replacing on of it baggage handling machines with a newer and more efficient machine. The book value of the old machine is $50,000, and it has a useful remaining life of of five years. The salvage value of the old machine at the end of five years is zero, but the company can sell the machine now for $10,000. The new baggage handling machine will cost $120,000 and has an estimated useful life of seven years. It has an estimated salvage value of $30,000 and is expected to have a total annual savings of $50,000. The company has a MARR of 15%. Should the airline purchase the new machine? None of the above Yes, purchase the new machine Either machine No, keep the existing machine Question 2 1/1 point The company is considering replacing a broken inspection machine. They can purchase a used machine for $5000. The used machine will require an immediate $1200 overhaul to restore it to working condition. If repaired the machine can be used for another 3 years. The operating costs are estimated at $2000 during the first year and these costs are expected to increase by $1500 per year thereafter. The value of the machine is expected to decline by 25% per year over the previous year's value (from the original 5000). At a MARR of 15%, determine the economic service life of the machine. 1 year 2 years 3 years None of the above

Explanation / Answer

Since NPV is positive, it is better to purchase the new machine.

Correct Option is:

Yes, purchase the new machine

Question 2:

Since the used machine can be used for amother 3 years, the economic service life of the machine = 3 years

Question 1: NPV Year Cash Flow PVF(15%) PV of CF 0 -110000 1 -110000 1 to 7 50000 4.160419734 208020.9867 7 30000 0.37593704 11278.1112 109299.0979

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