2.00000 points Save Answ A company owns a milling machine that it is considering
ID: 1157853 • Letter: 2
Question
2.00000 points Save Answ A company owns a milling machine that it is considering replacing. Its current market value is $25,000, but it can be productively used for four more years at which time its market value will be zero. Operating and maintenance expenses are $50,000 per year. The company can purchase a new milling machine, with the same functionality as the current machine, for $90,000. In four years the market value of the new machine is estimated to be $45,000. Annual operating and maintenance costs will be $35,000 per year. Should the old milling machine be replaced using a before-tax MARR of 10% and a study period of four years?Explanation / Answer
Net Present Worth for Old Machne
=-25000-50000/1.1-50000/1.1^2-50000/1.1^3-50000/1.1^4=-183493.27
Net Present Worth for New Machine
=-45000-35000/1.1-35000/1.1^2-35000/1.1^3-35000/1.1^4=-155945.3
NPW of Cost for New Machine is lower than NPW of Cost for Old Machine
They should go for New Machine
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