ABC Boat Company Is Interested in Replacing a Moulding Machine

question 139

Essay

ABC Boat Company is interested in replacing a moulding machine with a new improved model.The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in six years, if rebuilt.If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000.The new machine costs $160,000 and has a predicted salvage value of $28,000 at the end of six years.The new machine will generate cash savings of $40,000 for each of the first three years and $20,000 for each year of its remaining six-year life.Ignore income taxes.Required:
What is the net present value of replacing the old machine if the company has a required rate of return of 14 percent?

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Definitions:

COPSystem

A framework or system used in career guidance and planning, often involving assessments of interests, abilities, and values to help individuals make informed career decisions.

Interest Inventory

Assessment tools designed to explore and evaluate a person's interests in a variety of activities, work environments, and careers to aid in decision-making processes related to education and employment.

Interest Inventory

An assessment that measures a person's interests in various fields of work or activity, to guide career planning or educational decisions.