Question

X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have lower operating costs. The following information is available: The new equipment will cost $52,000. Disposal value at the end of its 6-year useful life will be $6,500. The old equipment was purchased 3 years ago for $24,000. It can be sold immediately for $5,000 but will have zero disposal value in 6 years. Maintenance work, costing $3,500, will be necessary on the old equipment in Year 4. The new equipment will result in $9,500 of operating cost savings each year. Assuming a discount rate of 6%, what is the net present value of replacing the old equipment with the new equipment?

Answer 1

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