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Playfurn buy the new machine

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The furniture division of Playfurn Ltd, a profitable, diversified company, purchased a machine 5 years ago for $75 000. When it was purchased the machine had an expected useful life of 15 years and an estimated value of zero at the end of its life. The machine currently has a market value of $10 000. The division manager reports that he can buy a new machine for $160 000 (including installation) which, over its 10-year life, will result in an expansion of sales from $100 000 to $110 000 per annum. In addition, it is estimated that the new machine will reduce the annual operating costs from $70 000 to $50 000. If the required rate of return 10 per cent per annum, should Playfurn buy the new machine?

Reference no: EM132516447

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