Machine A was purchased last year for $18,000 and had an estimated MV of $2,000

Question

Machine A was purchased last year for $18,000 and had an estimated MV of $2,000 at the end of its six-year life Annual operating costs are $2,100. The machine will perform satisfactorily over the next five years. A salesman for another company is offering a replacement, Machine B, for $14,000, with an MV of $1,200 after five years. Annual operating costs for Machine B will only be $1,500. A trade-in allowance of $9,800 has been offered for Machine A. If the before-tax MARR is 9% per year, should you buy the new machine? Click the icon to view the interest and annuity table for discrete compounding when MARR: 9% per year. Choose the correct answer below O No, continue with Machine A O Yes, purchase Machine B.

Explanation / Answer

answered
A
Year Cash Flow PV factor@12% PV of cash Inflows
0 20000 1 -20000
1 8400 0.988 8300.40
2 8400 0.976 8201.97
3 8400 0.965 8104.72
4 8400 0.953 8008.61
5 8400 0.942 7913.65
5 2000 0.942 1884.20
NPV 22413.54
B
Year Cash Flow PV factor@12% PV of cash Inflows
0 14000 1 -14000
1 1400 0.988 -1383.40
2 1400 0.976 -1367.00
3 1400 0.965 -1350.79
4 1400 0.953 -1334.77
5 1400 0.942 -1318.94
5 1400 0.942 1318.94
NPV -19435.95
Machinery A is to be choosen

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