Question 58

Marigold, a large manufacturing company, currently uses a large printing press in its operations and is considering two replacements: the PDX341 and PDW581. The PDX costs $480,000 and has annual maintenance costs of $8,000 for the first 5 years and $13,000 for the next 10 years. After 15 years, the PDX will be scrapped (salvage value is zero). In contrast, the PDW can be acquired for $120,000 and requires maintenance of $26,000 a year for its 10-year life. The salvage value of the PDW is expected to be zero in 10 years. Assuming that Marigold must replace its current printing press (it has stopped functioning), it has a 9-percent cost of capital, and all cash flows are after tax, which replacement press is the most appropriate?(Round answers to 2 decimal places, e.g. 125.25.)

Chain Replication Approach:

NPV of PDX341

$

NPV of PDW581

$

We would prefer

PDX341

PDW581

.

Equivalent Annual NPV Approach:

Equivalent Annual NPV of PDX341

$

Equivalent Annual NPV of PDW581

$

We would prefer

PDX341

PDW581

.