Your company bought a production line 5 years ago for $75,000. At that time, it was estimated to have a service life of 15 years and salvage at the end of its service life of $20,000 today. Your boss recently proposed to replace the production line with a moder production line expected to last 20 years and cost $120,000 today. This new production line could provide $10,000 savings in annual operating and maintenance costs, and have salvage value of $30,000 at the end of 20 years. The seller of the new production line is willing to accept the old production line as trade-in for its current fair market value, whic is $22,000 today. Your boss estimates that if the old production line is kept for 10 more years, its salvage value will be $15,000. If MARR is 8% per year, use replacement analysis to answer the following question: Should you keep the old production line or
Your company bought a production line 5 years ago for $75,000. At that time, it was estimated to have a service life of 15 years and salvage at the end of its service life of $20,000 today. Your boss recently proposed to replace the production line with a moder production line expected to last 20 years and cost $120,000 today. This new production line could provide $10,000 savings in annual operating and maintenance costs, and have salvage value of $30,000 at the end of 20 years. The seller of the new production line is willing to accept the old production line as trade-in for its current fair market value, whic is $22,000 today. Your boss estimates that if the old production line is kept for 10 more years, its salvage value will be $15,000. If MARR is 8% per year, use replacement analysis to answer the following question: Should you keep the old production line or
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...
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