The replacement of a planning machine is being considered by the Reardorn Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $30 comma 000 for installation and will have an estimated economic life of 13 years and a $1 comma 500 MV at that time. It is estimated that annual expenses will average $13 comma 000 per year. The defender has a present BV of $6 comma 500 and a present MV of $5000. Data for the defender for the next three years are given below. Using a before-tax interest rate of 18 % per year, make a comparison to determine whether it is economical to make the replacement now.

Question

Business

Sasha Richmond

2 March, 07:56

The replacement of a planning machine is being considered by the Reardorn Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $30 comma 000 for installation and will have an estimated economic life of 13 years and a $1 comma 500 MV at that time. It is estimated that annual expenses will average $13 comma 000 per year. The defender has a present BV of $6 comma 500 and a present MV of $5000. Data for the defender for the next three years are given below. Using a before-tax interest rate of 18 % per year, make a comparison to determine whether it is economical to make the replacement now.

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Answers (1)

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Breanna Mahoney · Answer 1

We have the comparison below

Explanation:

1 2 3

Expenses for the year 20000 27000 34000

PVIF at 12% 0.89286 0.79719 0.71178

PV of expenses 17857 21524 24201

Cumulative PV of expenses 17857 39381 63582

EOY MV - 1000 - 1750 - 2500

PV of MV - 893 - 1395 - 1779

Total PW (4000 + PV of expenses - PV of MV) 22750 44776 69361

P/A 0.89286 1.69005 2.40183

EUAC 25480 26494 28879