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X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have
X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have lower operating costs. The following information is available:
- The new equipment will cost $53,000. Disposal value at the end of its 6-year useful life will be $6,000.
- The old equipment was purchased 3 years ago for $20,000. It can be sold immediately for $5,000 but will have zero disposal value in 6 years.
- Maintenance work, costing $4,000, will be necessary on the new equipment in Year 4.
- The new equipment will result in $9,000 of operating cost savings each year.
Assuming a discount rate of 8%, what is the net present value of replacing the old equipment with the new equipment? [Note: Use the Present Value tables in the Coursepack.]
A: $-5,553 | B: $-6,275 | C: $-7,091 | D: $-8,012 | E: $-9,054 | F: $-10,231 |
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