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Can someone please explain how we got the PV factors in the solution part? Why did we use two different table to calculate the PV
Can someone please explain how we got the PV factors in the solution part? Why did we use two different table to calculate the PV factors?
Thanks very much
Bay Boat Company is interested in replacing a molding machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in six years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000. The new machine costs $160,000 and has a predicted salvage value of $28,000 at the end of six years. The new machine will generate cash savings of $40,000 for each of the first three years and $20,000 for each year of its remaining six-year life. Ignore income taxes. Solution: PV ? Predicted cash flows Initial investment $(160,000) Salvage of old 20,000 Annual operations 40,000 Annual operations 20,000 Save by not rebuilding 40,000 Incremental salvage of new24,000 Net present value Year or PV of years factor cash flows 0 1.000 $(160,000) 0 1.000 20,000 1-3 2.322 92,880 4-6 (3.889-2.332) 31,340 1 0.877 35,080 6 0.456 10,944 $30,244Step by Step Solution
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