Question
X Company is unhappy with a machine that they bought just a year ago for $45,000. It is considering replacing it with a new machine
X Company is unhappy with a machine that they bought just a year ago for $45,000. It is considering replacing it with a new machine that will save significant operating costs. Operating costs with the current machine are $60,000 per year; operating costs with the new machine are expected to be $49,000 per year. Both machines will last for 4 more years.The current machine can be sold immediately for $5,000 but will have no salvage value at the end of 4 years. The new machine will cost $67,000 and have a salvage value of $1,500 in 4 years. Assuming a discount rate of 5%, what is the net present value of replacing the current machine?
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