Question

X Company is considering replacing one of its machines in order to save operating costs. Operating costs with the current machine are $70,000 per year operating costs with the new machine are expected to be $49,000 per year. The new machine will cost $70,000 and will last for four years, at which time can be sold for $2,000. The current machine will also last for four more years but will not be worth anything at that time. It cost $32,000 three years ago but is currently worth only $6,000. Assuming a discount rate of 48, what is the incrementalnet present value of replacing the current machine with the new machine? Submit Aww Thies 0/3

Answer 1

	Cash flow	Discount Factor 4 Years @ 4%	Present Value
Initial Net investment	64,000.00	1.000	64,000.00
Salvage value at the end of Year 4	2,000.00	0.855	1,710.00
Net Cash Savings inflow	21,000.00	3.630	76,230.00
Net Present Value			13,940.00