Byer, a Plastics Processor, Is Considering the Purchase of a High-Speed

question 90

Multiple Choice

Byer, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $47,000 and would have a residual value of $5000 at the end of its 6-year life. The annual operating expenses of the new extruder would be $4000. The other option that Byer has is to rebuild its existing extruder. The rebuilding would require an investment of $40,000 and would extend the life of the existing extruder by 6 years. The existing extruder has annual operating costs of $11,000 per year and does not have a residual value. Byer's discount rate is 12%. Using net present value analysis, which option is the better option and by how much? Present Value of $1
Present Value of Annuity of $1

• A)Better by $21,777 to rebuild existing extruder
• B)Better by $21,777 to purchase new extruder
• C)Better by $24,312 to rebuild existing extruder
• D)Better by $24,312 to purchase new extruder

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