Machine C was purchased five years ago for $200,000 and produces an annual real cash flow of

Question:

Machine C was purchased five years ago for $200,000 and produces an annual real cash flow of $80,000. It has no salvage value but is expected to last another five years. The company can replace machine C with machine B (see Problem 8) either now or at the end of five years. Which should it do?

Problem 8

Machines A and B are mutually exclusive and are expected to produce the following real cash flows

Machine C was purchased five years ago for $200,000 and

The real opportunity cost of capital is 10%.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...