8 ptX Company is considering replacing oe of its machines in

8 ptX Company is considering replacing oe of its machines in ordey to sive operating costs. Operating conts with the (\'llrrent machine are $70 (XX) per ven r: ()I)(ratilig costs with the nevv 111?( 11]le are (\"X])( (t(\"(l t() be $49.000 ])er vear. The new 111aclilne will cost $67,000 and will last for 4 vears, it which t???, il call be s(11 for $1.000. The current înachle will ilso last for 4 more years but will llave zer( ) salvag(, valile. Its (\'lll] (11 t (lisposal val le Is $6.000. Ass1 111 111)g n (liscount rat(! of 7% what is the difference between the net present valne if X Company replaces the current machine and the net preseut valhe if it·keeps the C111.rent ]nachine.? . AO 10,890 BO S15,790 CO $22.896 DO S33.200 EO $18.139 FO S69.802

Solution

Option A: $10890 is Correct.

Current Costs :

Old Machine = $ 6000

New Machine = $ 67,000

Difference = 6000 - 67000 = - $ 61,000

Benefits:

Year 1 to Year 4= 70,000 - 49,000 = $21,000

Year 4= 1,000