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Question 1 10 pts Firm AIC considers replacing its aging air compressing machine. The current machine consumes 610000 KWh of electricity per year and has
Question 1 10 pts Firm AIC considers replacing its aging air compressing machine. The current machine consumes 610000 KWh of electricity per year and has 0 salvage value. No maintenance needed for the old machine. Electricity costs $0.12 per kWh. A new machine costs $24,000. There is a one-time installation cost of $2000. The new machine would save 20% of the electricity consumed by the old machine for achieving the same level of productivity. However, maintenance services need to be performed on the new machine every 6 months to keep the energy saving effect. The maintenance cost for the new machine is $2000 per service. Suppose the energy saving of 20% can be guaranteed for 5 years (after that time, the energy saving level could be lowered, to 0% in the extreme situation, due to machine obsolescence. Thus, the company does not need to pay for maintenance service either.). Tax rate is 30% and cost of capital is 21% per year for AIC. Shall firm AIC replace the old machine with the new one? Make necessary reasonable assumptions to conduct your analysis. Upload Choose a File
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