Question
ABC Manufacturing Company needs to repair a machine or buy a new one. The facts have...
ABC Manufacturing Company needs to repair a machine or buy a new one. The facts have been gathered, and they are as follows:
|
Current Machine |
New Machine |
|
|
Purchase Price, New |
$200,000 |
$300,000 |
|
Repair costs needed now |
220,000 |
|
|
Annual cash operating costs |
100,000 |
80,000 |
|
Current salvage value |
40,000 |
|
|
Salvage value in five years |
10,000 |
20,000 |
Required:
Which alternative is the most desirable with a current required rate of return of 10%? Show computations, and assume no taxes.
Homework Answers
Answer #1
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