The managers at AAA Manufacturing Company are considering replacing an industrial mixer used in the company’s factory. The company’s cost of capital is 10 percent.

Required:

a. Prepare a relevant cost schedule showing the benefit of buying the new mixer.

b. How much must the company invest today to replace the industrial mixer?

c. If the new mixer is purchased, how much would be saved in operating costs each year?

d. How much would the company receive at the end of the five-year useful life of the new mixer?

e. Calculate the net present value of replacing the old mixer.

f. Do you think the company should replace the old mixer?

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Information about the old mixer: Cost Estimated useful life Estimated residual value Current age Estimated current fair value Annual operating cost Information about the new mixer: Cost Estimated useful life Estimated residual value Annual operating cost $28,000 10 years $0 5 years $8,000 $18,000 $34,000 5 years $0 $12,000