Dale Davis Company is evaluating a proposal to purchase a new machine that would cost £100,000 and have a salvage value of £10,000 in four years. It would provide annual operating cash savings of £10,000, as follows:
If the new machine is purchased, the old machine will be sold for its current salvage value of £20,000. If the new machine is not purchased, the old machine will be disposed of in four years at a predicted salvage value of £2,000. The old machine's present book value is £40,000. If kept, in one year the old machine will require repairs predicted to cost £35,000.
Dale Davis's cost of capital is 14 percent.
Required:
Should the new machine be purchased? Why or why not?
Definitions:
Medical Trial
A research study that tests how well new medical approaches work in people, often aimed at evaluating the efficacy and safety of medication, diagnostic procedures, or treatment protocols.
Consent
Consent is the agreement or permission given by an individual, freely and competently, for something to happen or for engaging in a specific activity.
Abigail Alliance
An organization advocating for wider access to experimental drugs for terminally ill patients before the completion of formal FDA approval processes.
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