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What is the net present value of replacing the equipment

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Reference no: EM132315444

Question :

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              $5,000

        Final sales value                  6,000

        Operating costs                   69,000

New equipment

         Purchase cost                     $55,000     

         Final sales value                   6,000

         Operating cost savings          9,500

Maintenance work will be necessary on the new equipment in Year 3, costing $3,000. The current equipment will last for five more years; the life of the new equipment is also five years. Assuming a discount rate of 5%, what is the net present value of replacing the current equipment?

Reference no: EM132315444

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