Question

Compa LA Company is considering replacing one of its machines in order to save opere current machine are $70,000 per year per year; operating costs with the new machine are expected to be $10.000 machine will cost $70,000 and will last for six vers at which time it can be sold for 1.00 last for six years, at which time it can be sold for $1.500. The current machine w last for six more years but will not be worth anything at that time. It cost $31,000 three years only $6,000. Assuming a discount rate of 4%, what is the incremental net present van on with the new machine? 9. AO $61,993 BO $77,491 CO 896,864 DO 5121,080 EO $151,350 F ve operating costs. Operating costs with the to be $46,000 per year. The new cost $31,000 three years ago but is currently worth al net present value of replacing the current machine 8 pt X Company is planning to launch year, indicating

Answer 1

Incremental investment = Cost of new machine-Old machine current value Incremental investment = $70,000-$5,000 Incremental investment = $65,000 Savings in operatings costs = $70,000-$46,000 Savings in operatings costs = $24,000 Particulars Incremantal investment Annual savings in operating costs Scrap value Incremental net present value Cashflow (A) $ -65,000 $ 24,000 $ 1,500 Pv factor @4% Discouned cash flow (A*B) 1 $ -65,000 $ 125,808 0.791 S 1,185 $ 61,993 Hence, the correct option is $61,993.