With the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X...
With the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 9% per year. Determine the replacement value.
| Machine X | Machine Y | |
| Market Value, $ | ? | 94,000 |
| Annual Cost, $ per Year | −57,500 | −40,000 for year 1,increasing by 2000 per year thereafter. |
| Salvage Value | 19,500 | 21,000 |
| Life, Years | 3 | 5 |
The replacement value is______ $ .
Homework Answers
AW of machine Y = -94000 * (A/P, 9%,5) - 40000 - 2000 * (A/G,
9%,5) + 21000 * (A/F,9%,5)
= -94000 * 0.257092 - 40000 - 2000 * 1.828197 + 21000 *
0.167092
= -64314.14
Let trade in value be P, then
AW of machine X = - P *(A/P, 9%,3) - 57500 + 19500 * (A/F, 9%,3)
= - P * 0.395055 - 57500 + 19500 * 0.305055
= - P * 0.395055 - 51551.43
As per given condition
- P * 0.395055 - 51551.43 = -64314.14
P = (64314.14-51551.43)/0.395055 = 32306.16
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