Rockhampton Engineering Needs to Overhaul Its Drill Press or Buy

question 89

Essay

Rockhampton Engineering needs to overhaul its drill press or buy a new one.The facts have been gathered,and they are as follows:
$$\begin{array} { | l | r | r | } \hline & \text { Current Machine } & \text { New Machine } \\\hline \text { Purchase Price, New } & \$ 80000 & \$ 100000 \\\hline \text { Current book value } & 30000 & \\\hline \text { Overhaul needed now } & 40000 & \\\hline \text { Annual cash operating costs } & 70000 & 40000 \\\hline \text { Current salvage value } & 20000 & \\\hline \text { Salvage value in five years } & 5000 & 20000 \\\hline\end{array}$$
Required:
Which alternative is the most desirable with a current required rate of return of 20%? Show computations,and assume no taxes.
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