4 In problem 3, you decided whether or not Granny should buy a new Turbo Suppose

Question

4 In problem 3, you decided whether or not Granny should buy a new Turbo Suppose Granny purchased the chun, but then one year after doing that, The manufacturer offers all its customers the option of exchanging their The new Supercharged Churn is expected to last for three years, and Churn that would last for 4 years. the manufacturer announces a new Supercharged Chum. old Turbo Churns for a Supercharged Churn for an additional $12,000. have a salvage value of $8,000. It will increase net income by $4000 per year MORE than the Turbo Chum, i.e., $12,000 per year versus $8,000 per year Even though Granny still has three years worth of life left on her Turbo Churn, should she pay the extra $12,000 for a Supercharged Churn? Use the same MARR of 10% (Ignore depreciation and taxes) e4

Explanation / Answer

ANSWER)

YEAR CASH FLOW P.V .FACTOR PRESENT VALUE OF NET FLOW

0 -20000 1 -20000

1 4000 0.909 3636

2 4000 0.826 3304

3 4000 0.751 3004

4 4000 0.683 2732

4 8000 0.683 5464

NET CASH FLOW -1860

CONCLUSION:- THE NET CASH FLOW FROM THE ABOVE CHANGE IN MACHINERY IS NEGETIVE SO IT IS BETTER TO DOES NOT OPT FOR THE CHANGE .

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