X Company must decide whether to continue using its current equipment or replace it with new,...

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X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The f

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Answer 1

Answer #1

NPV OF REPLACING THE CURRENT EQUIPMENT


	0	1	2	3	4	5
OLD EQUIPMENT

Operating Cost		$67,000.00	$67,000.00	$67,000.00	$67,000.00	$67,000.00
Sale of Equipment						$5,000

Cash Flows		$67,000.00	$67,000.00	$67,000.00	$67,000.00	$62,000.00

Discount @ 8%		0.925925926	0.85733882	0.793832241	0.735029853	0.680583197

PV		$62,037.04	$57,441.70	$53,186.76	$49,247.00	$42,196.16

NPV of OLD		$264,108.66


	0	1	2	3	4	5
New Equipment

Operating Cost	$43,000.00	$58,500.00	$58,500.00	$58,500.00	$58,500.00	$58,500.00
Sale of Equipment						$5,000
Repairs					$4,000.00
Cash Flows	$43,000.00	$58,500.00	$58,500.00	$58,500.00	$62,500.00	$53,500.00

Discount @ 8%	$1.00	0.925925926	0.85733882	0.793832241	0.735029853	0.680583197

PV	$43,000.00	$54,166.67	$50,154.32	$46,439.19	$45,939.37	$36,411.20

NPV of OLD		$276,110.74

Net Present Value of replacing the old		$12,002.08	ANS

		$12,002	ROUND OFF

THANK YOU
HOPING FOR A POSITIVE RESPONSE

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Answer 2

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