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Question: X Company must decide whether to continue using its current equipment or replace it with new, mor...
X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:
Current equipment | |
Current sales value | $5,000 |
Final sales value | 2,000 |
Operating costs | 67,500 |
New equipment | |
Purchase cost | $45,000 |
Final sales value | 5,500 |
Operating cost savings | 9,000 |
Maintenance work will be necessary on the new equipment in Year 4, costing $3,500. The current equipment will last for 6 more years; the life of the new equipment is also 6 years. Assuming a discount rate of 4%, what is the net present value of replacing the current equipment?
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