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Figgey, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $53,000 and would have a
Figgey, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $53,000 and would have a residual value of $6,000 at the end of its 10- year life. The annual operating expenses of the new extruder would be $4,000. The other option that Figgey has is to rebuild its existing extruder. The rebuilding would require an investment of $40,000 and would extend the life of the existing extruder by 10 years. The existing extruder has annual operating costs of $11,000 per year and does not have a residual value. Figgey discount rate is 12%. Using net present value analysis, which option is the better option and by how much? (The present value for this scenario is 0.322 and the present value of annuity for this scenario is 5.65.) A. Better by $28,482 to purchase new extruder. B. Better by $26,550 to rebuild existing extruder. C. Better by $28,482 to rebuild existing extruder D. Better by $26,550 to purchase new extruder
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