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Show all working please , cash flow and opportunity cost approach Question 7 Jake Warner Inc. bought a $20,000 match-fixing machine 2 years ago. The
Show all working please , cash flow and opportunity cost approach
Question 7 Jake Warner Inc. bought a $20,000 match-fixing machine 2 years ago. The company expected this machine to have a 5-year life and a salvage value of $5,000. The company spent $5,000 last year on repairs, and current operating costs are now running at the rate of $8,000 per year. Furthermore, the anticipated salvage value has now dropped to $2,500 at the end of the machine's remaining useful life. In addition, the company has found that the current machine has a market value of $10,000 today Jake Warner Inc. has been offered a chance to buy another match-fixing machine for $15,000. Over its 3-year useful life, the machine will reduce labour and raw materials usage sufficiently to cut annual operating costs to $6,000. They can sell the new machine for $5,500 at the end of year 3. If the new machine were purchased, the old machine would be sold on the market. Suppose the firm will need either machine for only 3 years and that it does not expect a new, superior machine to become available on the market during this required service period. At a 12% MARR, decide whether replacement is justified now, using a cash-flow approach. Rework using the opportunity- 9 2 cost approach, and comment on your answer. (15 marks) Step by Step Solution
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