Find what is the present worth of the defender

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Problem 1: Waldorf Manufacturing is operating a production facility, which will be closed in 5 years. A decision needs to be made whether to keep the existing machine in operation for 5 more years, despite its significant wear and tear, or whether to acquire a new machine instead, only to be used for 5 years before sold. The existing machine could be sold for $13000 today, or if kept for 5 more years, could be sold for $2000 in 5 years. Its annual operating expenses are $17000. A new machine could be acquired for $45,000, and re-sold for $20,000 in 5 years. Its annual operating expense would be $10,000. Replacing the existing machine with a new one would have no impact on revenues. Assume 9% cost of capital. If we set up the problem as comparing the present worth of the defender vs the present worth of the challenger, what is the present worth of the defender?

Reference no: EM132939845

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