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In: Accounting

X Company must decide whether to continue using its current equipment or replace it with new,...

X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:

Current equipment
   Current sales value $10,000
   Final sales value 6,500
   Operating costs 67,000
New equipment
   Purchase cost $52,000
   Final sales value 6,500
   Operating cost savings 9,500

Maintenance work will be necessary on the new equipment in Year 3, costing $2,500. The current equipment will last for six more years; the life of the new equipment is also six years. Assuming a discount rate of 6%, what is the net present value of replacing the current equipment?

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