Question
X Company is considering replacing one of its machines in order to save operating costs. Operating costs with the current machine are $68,000 per year;
X Company is considering replacing one of its machines in order to save operating costs. Operating costs with the current machine are $68,000 per year; operating costs with the new machine are expected to be $39,000 per year. The new machine will cost $53,000 and will last for four years, at which time it can be sold for $2,500. The current machine will also last for four more years but will not be worth anything at that time. It cost $30,000 three years ago but is currently worth only $7,000.
Assuming a discount rate of 8%, what is the incremental net present value of buying the new machine instead of keeping the current machine?
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