In: Accounting
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?