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X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for
X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:
Current equipment | |
Current sales value | $5,000 |
Final sales value | 3,500 |
Operating costs | 70,000 |
New equipment | |
Purchase cost | $53,000 |
Final sales value | 6,000 |
Operating cost savings | 8,500 |
Maintenance work will be necessary on the current equipment in Year 3, costing $3,000. The current equipment will last for 6 more years; the life of the new equipment is also 6 years. Assuming a discount rate of 6%, what is the net present value of replacing the current equipment?
**The answer is not 3608, 544.50, or 694.50**
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