Question

Question 58

Marigold, a large manufacturing company, currently uses a large printing press in its operations and is considering two replacements: the PDX341 and PDW581. The PDX costs $480,000 and has annual maintenance costs of $8,000 for the first 5 years and $13,000 for the next 10 years. After 15 years, the PDX will be scrapped (salvage value is zero). In contrast, the PDW can be acquired for $120,000 and requires maintenance of $26,000 a year for its 10-year life. The salvage value of the PDW is expected to be zero in 10 years. Assuming that Marigold must replace its current printing press (it has stopped functioning), it has a 9-percent cost of capital, and all cash flows are after tax, which replacement press is the most appropriate? (Round answers to 2 decimal places, e.g. 125.25.)

Chain Replication Approach:

NPV of PDX341		$
NPV of PDW581		$
We would prefer PDX341PDW581 .

Equivalent Annual NPV Approach:

Equivalent Annual NPV of PDX341		$
Equivalent Annual NPV of PDW581		$
We would prefer PDX341PDW581 .

Answer 1

Replacement PDX 341 Outflow to Coj ) $ 480,000 o Injloco your colf Adt tay Curnilative pujactor 9% 1-5 8000 euch 3.8894. 6-15 13000 each 4.141 Picoft 31117,6 54.223 (3.06 07 - 3.8893) Total cop $ 85340,6 + PVcore 480000 Net Premit Ceyl $565340,6 ③ Annual Not prent coft =) Ned prent con Cuniladive pv.fcector. -) 565340.6 800607 => 70135n42 Replacocnent PDW581 © oud globo 3 coft e) $ 120,000 Indioco Year COL-AD4tay Cumilative pugaidor@9% PVeel 1-10 26000 each 6.4177 166860.2 PVeelt 166860.2 + PV Spa 20,000 Nel grouf cak 286860.2 CS$canned with CamScanner Annual NPC = NPC Cum.pV.Jactor -> 286860.2 - G-4177 -> $44698129 Conclusi - Since Npc is len in Replacement of POW581, this is most appritiahla replacement