Reference no: EM132508857

Question - X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have lower operating costs. The following information is available:

The new equipment will cost $51,000. Disposal value at the end of its 6-year useful life will be $5,500.

The old equipment was purchased 3 years ago for $20,000. It can be sold immediately for $10,000 but will have zero disposal value in 6 years.

Maintenance work, costing $3,500, will be necessary on the new equipment in Year 4.

The new equipment will result in $10,000 of operating cost savings each year.

Assuming a discount rate of 8%, what is the net present value of replacing the old equipment with the new equipment?

A: $4,473

B: $5,233

C: $6,122

D: $7,163

E: $8,381

F: $9,806