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:

Cytology

Study of anatomy, physiology, pathology, and chemistry of the cell.

Molecular Biology

The branch of biology that deals with the structure and function of the macromolecules (e.g., proteins and nucleic acids) essential to life.

Microbiology

The study of microscopic organisms, including viruses, bacteria, archaea, fungi, and protozoa.

Surface Anatomy

The study of the external features of the body and their relationship to deeper structures, used in medical training to locate organs and make diagnoses.