Question

8 pt X Company is considering replacing one of its machines in order to save operating costs. Operating costs current machine are $68,000 per year; operating costs with the new machine are expected to be $48,000 per year. machine will cost $70,000 and will last for four years, at which time it can be sold for $2,000. The current machin last for four more years but will not be worth anything at that time. It cost $30,000 three years ago but is curren only $4,000. Assuming a discount rate of 4%, what is the incremental net present value of replacing the curren with the new machine? 9. AO $5,759 BO $6,508 CO $7,351 DO 88,310 EO 89,390 FO $10,611 8 pt X Company is planning to launch a new product. A market research study, costing $190,000, was con year, indicating that the product will be successful for the next four years. Profits from sales of the product a to be $163,000 in each of the first two years and $106,000 in each of the last two years. The company plans to an immediate advertising campaign that will cost $91,000. New manufacturing equipment will have to be pu $360,000; it will have zero disposal value at the end of the four years. Assuming a discount rate of 6%, whe present value of launching the new product? 10. AO $10,635 BO $13,293 CO 816,617 DO $20,771 EO $25,961 FO $32,456 8pt X Company must replace one of its current machines with either Machine A or Machine B. The usefu machines is seven years. Machine A costs $50,000, and Machine B costs $58,000. Estimated annual cash flows machines are as follows: Year Machine A Machine B S-6,000 $-7,000 -8,000 -4,000 -8,000 -3,000 -8,000 -3,000 -6,000 -3,000 -5,000 -2,000 -4,000 -2,000 Company buys Machine B instead of Machine A, what is the payback period (in years)? AO 2 BO 3 CO 4 DO 5 EO 6 FO7 USE THE PRESENT VALUE TABLES ON THE NEXT PAGE

Answer 1

	Calculation of cash flows if machine is not replaced
	Operating costs per year	$68,000
	Present value of operating costs over 5 years	68000*PVAF(5, 4%)
		$246,840
	Calculation of cash flows if machine is replaced
a	Initial Net Outlay	66000	(70000-4000)
	Operating costs per year	$48,000
b	Present value of operating costs over 5 years	48000*PVAF(5, 4%)
		$174,240
c	Present value of salvage after 5 years	2000*PVF(5, 4%)
		(2000*0.855)
		1710
	Present value of net outflow (a+b-c)	$238,530
	Incremental Net present value of replacing	(246840-238530)
		8310
	Answer D.   $8,310