Question
?Figgey, a plastics? processor, is considering the purchase of a high?speed extruder as one option. The new extruder would cost $48,000 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 $48,000
and would have a residual value of $7,000
at the end of its6?year
life. The annual operating expenses of the new extruder would be$10,000.
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
6 years. The existing extruder has annual operating costs of
$15,000
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?
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