Indefinite future need for this type of machine

Reference no: EM13276920

The replacement of a planning machine is being considered by a company. (There is an indefinite future need for this type of machine). The best challenger will cost $30,000 for installation and will have an estimated economic life of 12 years and a $2,000 MV at that time. It is estimated that annual expenses will average $16,000 per year. The defender has a present BV of $6,000 per year. The defender has a present BV of $6,000 and a present MV of $4,000. Data for the defender for the next three years are as follows: Year 1 MV at EOY $3000 BV at EOY $4500 Expenses $20,000, Year 2 MV at EOY $2500 BV at EOY $3000 Expenses $25,000, Year 3 Mv at EOY $2000 BV at EOY $1500 Expenses $30,000. Using a before tax interest rate of 15% per year, make a comparison to determine whether it is ecnomical to make the replacement now

Reference no: EM13276920

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