Question 8 200000 points Save Answer A company owns a millin

Question 8 2.00000 points Save Answer A company owns a milling machine that it is considering replacing. Its current market value is $25,000, but it can be productively used for four more years at which time its market value will be zero. Operating and maintenance expenses are $50,000 per year. The company can purchase a new milling machine, with the same functionality as the current machine, for $90,000. In four years the market value of the new machine is estimated to be $45,000. Annual operating and maintenance costs will be $35,000 per year. Should the old milling machine be replaced using a before-tax MARR of 10% and a study period of four years? Attach File Browse My Computer Browse Content Collection

Solution

Net Present Worth for Old Machne

=-25000-50000/1.1-50000/1.1^2-50000/1.1^3-50000/1.1^4=-183493.27

Net Present Worth for New Machine

=-45000-35000/1.1-35000/1.1^2-35000/1.1^3-35000/1.1^4=-155945.3

NPW of Cost for New Machine is lower than NPW of Cost for Old Machine

They should go for New Machine