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.

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