One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just three 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 $21,000, after which operating costs will be $61,000 a year. It will also require a maintenance check in the second year that is estimated to cost $3,000.
A new machine will cost $80,000, but it will be more efficient than the repaired machine, with annual operating cost savings of $9,000.
Both the repaired machine and the new machine will last for four years, at which time the repaired one would be worthless, and new one would be worth $6,000. If it is not repaired, the damaged machine can be sold immediately for $4,000.
Assuming a discount rate of 5%, what is the net present value of buying the new machine instead of repairing the damaged machine? [Use the present value tables in the Coursepack.]
Here are the present value tables:
ov_tables.pdf X X Search or enter web address 1 of 1 + | D Page view | A Read aloud Draw Highlight Erase A Table 1: Present Value of $1.00 2% 3% 4% 6% 0.9861 0.961 0.912 0.924 0906 DXN 0.871 0.833 0.971 0.943 0.915 0.888 0.863 Period 1% 1 0.990 2 0.980 3 0.971 0.961 3 0.951 0.942 7 0.933 8 0.923 9 0.914 101 0.905 11 0.896 (.962 0.925 (1.889 0.855 0.822 (1.7901 0.7601 0.231 0.703 (1.676 0.650 ( (0.625 (1.601 0.572 0.952 0.907 (1.864 0.823 0.784 (1.746 0.711 0.677 0.645 (1.614 0.58S (1.557 0.530 0.SOS 0.9.13 0.890 (1.8:10 0.792 0.747 0.7015 01.665 0.627 0.592 (1.558 0.813 0.789 0.7606 0.744 0.722 0.701 0.681 0.661 0.935 0.926 0.873 0.857 01.816 (1.794 0.363 0.735 0.713 0.681 0.666 0.630 0.623 0.583 0.582 0.540 0.544 0.500 0.50 (1.46.3 0.475 0.429 0.444 0.397 0.415 01.36X 0.388 0.340 99% 12% 13% 0.917 0.919 0.XII 0.901 0.893 0.885 0.877 0.870 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.772 0.751 0.731 0.712 0.712 0.693 0.693 0.675 0.65 0.708 0.683 0.659 0.636 0.636 0.613 0.5920.572 0.650 0.621 0.593 0.567 0.567 0.543 0.519 0.497 0.596 0.564 0.535 0.507 0.480 0.456 0411 0.432 0.517 0.513 0.182 0.152 0.152 0.125 0.125 0.100 0.376 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.422 0.186 0.152 0.122 0.295 0.270) 0.247 0.388 0.350 0.317 0.2870.261 0.237 0.215 0.156 0.119 0.286 0.257 0.231 0.208 0.208 0.187 0.326 0.290 0.258 0.229 0.204 0.182 0.182 0.163 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.821 0.804 0.78 0.773 0.258 0.527 0.497 12 0.879 0.870 0.169 0.442 14 Table 2: Present Value of an Annuity of $1.00 Period 4% S% 6% 1 2 3 4 5 6 G 1% 21% 0.990 0.980 0.971 1.970 1942 1.913 2.941 2.884 2.829 3.902 3.ROR 3.717 4.853 4.713 4.580 5.795 5.601 5.417 6.728 6.472 6.2.10 7.652 7.325 7.020 8.566 7.786 9.171 8.983 8.530 10.368 9.782 9.253 11.233 10.575 9.954 12.134 11.348 10.6.35 13.00 12.106 11.296 1.886 2.775 3.630 4.452 5.242 6.12 6.733 7.435 8.111 0.952 1.859 2.723 3.516 4.329 5.076 5.786 6.-163 7.108 7.722 8.306 8.863 0.943 1.833 2.673 3.165 4212 4917 5.582 6.210 6.802 7.360 7.887 3.384 7 7% 8% 0.935 0.926 1.808 1.783 2.624 2.577 3.387 3.312 4.100 3.993 4.767 4.623 5.389 5.2016 5.971 5.747 6.SIS 6.247 7,024 6.710 7.499 7.139 7.943 7530 8.35% 7.9114 8.7415 8.244 9% 10% 11% 13% 1.5% 0.917 0.009 0.909 0.901 0.893 0.885 0.877 0.870 1.759 1.736 1.713 1.690 1.668 1.647 1626 2.444 2.402 2.361 2.322 2.283 3.170 3.102 3.037 2.974 2014 3.890 3.791 3.696 3.517 3.433 3.352 4.436 4.355 4.231 4.111 3.998 3.889 3.784 5.033 4.86 4.712 4.564 4.423 4.288 4.1611 5.535 5.333 5.146 4.968 4.799 4.636 4.487 5.995 5.759 5.537 5.328 5.132 4.946 4.792 6.118 6.145 5.XR9 5.65 5.650 5.426 5.426 5.216 3.119 6.803 6.4936.207 5.938 5.687 3.453 3.234 7.161 6.814 6.492 6.194 5.918 5.60 5.421 7.487 7.1013 6.750 6.424.122 5.842 7.786 7.367 6.982 6.628 6.302 6.002 5.724 8 9 10 11 12 9385 13 9.986 10.563 8.853 9.295 14 9.899 Type here to search O BA 11:28 AM 4/1/21 0
