It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of P85,000 each year for 4 years and then be scrapped for P5,000 residual value. The new machine requires an investment of P40,000 and would have out-of- pocket costs of P79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 12% before taxes. Determine the present value of the old machine.

It is desired to determine the present economic value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out-of-pocket costs of P85,000 each year for 4 years and then be scrapped for P5,000 residual value. The new machine requires an investment of P40,000 and would have out-of- pocket costs of P79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 12% before taxes. Determine the present value of the old machine.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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