Question
Oriole Cleaners is considering replacing one of its tired cleaning machines for a new model that can dry-clean clothes in half the time of the
Oriole Cleaners is considering replacing one of its tired cleaning machines for a new model that can dry-clean clothes in half the time of the old machine. Both the book value and the salvage value of the current machine are $2,530; the current machine would be sold if the new machine is purchased. The new machine would cost $20.400 and is expected to last 15 years, at which point it would be sold for its salvage value of $2,040. It would generate additional net operating cash flows of $4,660 each year of its useful life. Oriole Cleaners estimates its tax rate to be 25%, while its required rate of return is 8%.
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