Relatively inefficient vertical drill machine

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Reference no: EM132024779

The Wu Lighting Company is considering replacing an old, relatively inefficient vertical drill machine that was purchased 7 years ago at a cost of $11,000. The machine had an original expected life of 12 years and no salvage value at the end of that period. The divisional manager reports that a new machine can be purchased. Over its five-year life, the new machine will expand sales from $12,000 to $20,000 a year and will reduce the usage of labor and raw materials sufficiently to cut annual operating costs from $7,000 to $2,000. The new machine has an estimated salvage value of $2,000 at the end of its five-year life. The old machine`s current market value is $2,000; the firm`s MARR is 15%. What price of the new machine will make the Wu Lighting Company indifferent between keeping the old machine and purchasing a new machine? Enter your answer as positive number. Hint: think of comparing the present worth of the two options

Reference no: EM132024779

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