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Hi could you please provide the solution to this Corporate Finance Question. Subject : Corporate Finance 16. Replacement decision A company is considering the installation
Hi could you please provide the solution to this Corporate Finance Question.
Subject: Corporate Finance
16. Replacement decisionA company is considering the installation of a new machine at a cost of $60,000 to replace a machine purchased 7 years ago for $100,000. The disposal value of the old machine is $15,000. Both machines have similar outputs and will produce work of identical quality. The estimate yearly costs of operating each machine are as follows:
Old Machine New Machine
Wages $15000 $5000
Supplies, repair, power $5000 $3000
Insurance $2000 $3000
Total $22000 $11000
Both machines have an estimated remaining life of 3 years, at which time both machines will have an estimated disposal value of $5000, assume that:
A)The RRR 10% p.a.
B)The operating costs of the old machine and the new machine are incurred at the end of each year should the company purchase the new machine, or continue to operate the old one?
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