Sweet Tea by the Gallons (STG) has an older piece of equipment that potentially needs to be replaced with a newer piece of equipment. Information for each machine is provided below: Current (Old) Equipment Book Value $320,000 Annual repair expense $8,000 Useful life 5 years Selling price $115,000 Selling expense $4,000 New Equipment Purchase Price $210,000 Annual repair expense $200 Years in lease 5 years What is the differential profit for keeping the old equipment? What is the differential profit for purchasing the new equipment? Which option is most profitable, keeping or replacing? Insert numerical value. What is one relevant qualitative consideration for this decision?

Sweet Tea by the Gallons (STG) has an older piece of equipment that potentially needs to be replaced with a newer piece of equipment. Information for each machine is provided below: Current (Old) Equipment Book Value $320,000 Annual repair expense $8,000 Useful life 5 years Selling price $115,000 Selling expense $4,000 New Equipment Purchase Price $210,000 Annual repair expense $200 Years in lease 5 years What is the differential profit for keeping the old equipment? What is the differential profit for purchasing the new equipment? Which option is most profitable, keeping or replacing? Insert numerical value. What is one relevant qualitative consideration for this decision?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

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