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Assume that a company is choosing between two alternativeskeep an existing machine or replace it...

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Accounting

Assume that a company is choosing between two alternativeskeep an existing machine or replace it with a new machine. The costs associated with the two alternatives are summarized as follows:

Existing Machine New Machine
Purchase cost (new) $ 15,000 $ 22,000
Remaining book value $ 6,000
Overhaul needed now $ 5,000
Annual cash operating costs $ 11,000 $ 7,000
Salvage value (now) $ 2,000
Salvage value (eight years from now) $ 1,000 $ 6,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Assuming a discount rate of 19%, what is the net present value of the cash flows associated with replacing the existing machine with a new machine?

Multiple Choice

$(54,184)

$(48,184)

$(46,184)

$(50,184)

Answer & Explanation Solved by verified expert
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