Question

I am checking to see if I missing anything in this problem? Thank you!

The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $960. One possible alternative is to invest in new machinery, which has a cost of $40,600. This new machinery would produce estimated annual operating cash savings of $13,300. The estimated useful life of the new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value of $2,160 at the end of four years. The investment in the new machinery would require an additional investment in working capital of $3,000, which would be recovered after four years. If the DOT accepts this investment proposal, disposal of the old machinery and investment in the new equipment will take place on December 31, 20x1. The cash flows from the investment will occur during the calendar years 20x2 through 20x5. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Prepare a net-present-value analysis of the county DOT's machinery replacement decision. The county has a 10 percent hurdle rate. (Round your "Discount factors" to 3 decimal places and final dollar amounts to whole dollars. Negative amounts should be indicated by a minus sign.)

Answer 1

. (w.c) Cold Machine Values Yes, you are doing it absolutely right, NPV = Prof Cash iglow - Cash ouf lows Cash outflow = 40,600 + 3000 - 960 = $ 42,640 Cash Inflow Income PV puol Cash In low 13300 0 1909 12090 13,300 0.826 10986 13,300 13,300 0.8683 9988 0.0751 &- ferus 12608 2160 ( Sawape) 0.683 3000 ( Woc) 0683 45672 NPV = 45672- 42640 - $3,032 Scanned with CamScanner Car