Answered step by step
Verified Expert Solution
Question
1 Approved Answer
One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just two years earlier for $40,000. The company must either
One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just two years earlier for $40,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $20,000, after which operating costs will be $65,000 a year. It will also require a maintenance check in the second year that is estimated to cost $4,000. A new machine will cost $83,000, but it will be more efficient than the repaired machine, with annual operating costs of only $53,000. Both the repaired machine and the new machine will last for five years, at which time the repaired one would be worthless, and new one would be worth $7,000. If it is not repaired, the damaged machine can be sold immediately for $4,000. Assuming a discount rate of 4%, what is the net present value of repairing the damaged machine instead of buying the new machine? [Use the present value tables in the Coursepack.] A: $-2,105 B: $-2,378 C: $-2,688 D: $-3,037 E: $-3,432 OF: $-3,878
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started