Question
You are operating an old machine that is expected to produce a cash inflow of $ 5,000 in each of the next 3 years before
You are operating an old machine that is expected to produce a cash inflow of $ 5,000 in each of the next 3 years before it fails . You can replace it now with a new machine that costs $ 20,000 but is much more efficient and will provide a cash flow of $ 10,000 a year for 4 years . The company uses a 10 % discount rate for equipment replacement decisions . Should you replace the old machine ? NOTE : Equivalent Annual Annuity is the same as Equivalent Annual Cost or EAC Do not replace , the old machine has a higher NPV O Do not replace , the equivalent annual annuity of the new machine is \$3.691
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