It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of P85,000 each year for 4 years and then be scrapped for P5,000 residual value. The new machine requires an investment of P40,000 and would have out-of-pocket costs of P79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.

It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of P85,000 each year for 4 years and then be scrapped for P5,000 residual value. The new machine requires an investment of P40,000 and would have out-of-pocket costs of P79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.

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Description: Complete solution, thank you. It is desired to determine the present economic value of an old machine byconsidering of how it compares with the best modern machine that could replace it.The old machine is expected to require out-of-pocket costs of P8

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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