Question
Shiny Car Wash has just purchased a $40,000 machine that has annual cash operating costs of $30,000. This machine is expected to last 4 years
Shiny Car Wash has just purchased a $40,000 machine that has annual cash operating costs of $30,000. This machine is expected to last 4 years and has zero terminal disposal value. On the first day of operation, the company manager learned that a new model for a similar machine is on sale for $48,000, annual cash operating costs are only $18,000, and it is expected to last 4 years with a zero terminal disposal value. The manager quickly found out the equipment she just bought could be sold outright for $20,000 minus a $4,000 removal cost. For simplicity sake, ignore taxes and the time value of money and estimate: *What would be the cumulative difference in cashflow over 4 years if the manager decides to buy the new model and dispose of the current machine right away? *What would be the cumulative difference in cashflow over 4 years if she had just purchased the current machine for $100,000 (instead of $40,000), bought the new model and disposed of the current machine right away? A. $60,000 decrease; $120,000 decrease B. $24,000 decrease; $24,000 decrease C. $16,000 increase; $60,000 decrease D. $24,000 decrease; $84,000 decrease E. $16,000 increase; $16,000 increase
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