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

question 1

Multiple Choice

Stensels, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $50,000 and would have a residual value of $5,000 at the end of its 8 year life. The annual operating expenses of the new extruder would be $8,000. The other option that Stensels has is to rebuild its existing extruder. The rebuilding would require an investment of $30,000 and would extend the life of the existing extruder by 8 years. The existing extruder has annual operating costs of $11,000 per year and does not have a residual value. Stensels' discount rate is 14%. Using net present value analysis, which option is the better option and by how much?

• A) Better by $4,330 to rebuild existing extruder
• B) Better by $4,330 to purchase new extruder
• C) Better by $6,083 to rebuild existing extruder
• D) Better by $6,083 to purchase new extruder

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