Reference no: EM131733650

Question 1 - X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:

Current equipment

• Current sales value - $10,000
• Final sales value - 2,000
• Operating costs - 69,500

New equipment

• Purchase cost - $51,000
• Final sales value - 5,000
• Operating cost savings - 9,500

Maintenance work will be necessary on the new equipment in Year 3, costing $3,500. The current equipment will last for 6 more years; the life of the new equipment is also 6 years. Assuming a discount rate of 8%, what is the net present value of replacing the current equipment?

Question 2 - X Company currently buys 8,000 units of a part each year-from a supplier for $160 each, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last For 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $33,110 a year to make the 8,000 units.

What is the approximate rate of return if)( Company makes the part instead of buying it from the supplier?