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Q4. ABC Boat Company is interested in replacing an old machine with a new improved model. The old machine has a salvage value of $20,000
Q4. ABC Boat Company is interested in replacing an old machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in 6 years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000. The new machine costs $160,000 and has a predicted salvage value of $24,000 at the end of 6 years. If purchased, the new machine will allow cash savings of $40,000 for each of the first three years, and $20,000 for each year of its remaining 6-year life. Required What is the net present value of purchasing the new machine if the company has a required rate of return of 14%? Q4. ABC Boat Company is interested in replacing an old machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in 6 years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000. The new machine costs $160,000 and has a predicted salvage value of $24,000 at the end of 6 years. If purchased, the new machine will allow cash savings of $40,000 for each of the first three years, and $20,000 for each year of its remaining 6-year life. Required What is the net present value of purchasing the new machine if the company has a required rate of return of 14%
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