Bycr, a plastics prooCssor is considerin the purchase of a high-spced cxtruder a
ID: 2544752 • Letter: B
Question
Bycr, a plastics prooCssor is considerin the purchase of a high-spced cxtruder as onie pon The now cxtruder would cost $40,000 and wouki have a resdual value of $4,000 al the end of its 6 -year lifc. Thc annual operaling expenscs of the new extruder would be seeother opnn that Ryer has is to rebuild its existing extruder The rebuilding wauld require an investment ot $40 cci and wou exend the lite the existng extruder by ti years The exstng extruder hes anniual operatingrasts o s1cc per year Bnd does not haeres dual-eue Byer's discount rate is 14% using net present value analysts. which option is the better option and by how much? (click the icon to view the present value of$1 tstie) (click the icon to view the present value ot annuity of $1 table ) OA. O B. ° C. Better by $7,556 to purchase new extruder Better by S9, 380 to purchase new extruder Better by $9 380 to rebuild existing extruder D. Better by $7556 to rebuild existing extruderExplanation / Answer
NPV when extuder is purchased
NPV = -$48,000 - $23,332.20 + $1,822.40 = - $69,510
NPV when extuder is rebuild
NPV = -$40,000 - $38,890 = - $78,890
Note : Since NPV cost under purchase option is $ 9,380 ($78,890 - $69,510) less than NPV cost under rebuild option . Thus it is advisable to purchase extuder.
Answer : B. Better by $ 9,380 to purchase new extuder
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