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You are considering two options for manufacturing a typical product: 1. You continue to use an old machine now in use which was bought 8 years ago at $12,000. It has been fully depreciated but can be sold for $1,300. If kept, it could be used for 3 more years (romaining useful life), at the end of which time it would have no salvage value. The annual operating and maintenance costs amount to $10,000 for the old machine. 2. You purchase a brand new machine at an invoice price of $15,000 to replace the prosont equipment. Because of the nature of the product manufactured, it also has an expected economic life of 3 years, and will have a salvage value of $3,400 at the end of that time. With the new machine, the expected operating and maintenance costs amount to $3,000 for the first year and $4.000 in each of the next two years. What is the opportunity cost of not replacing the old machine now? O S700 O $1,300 $2,000 O S10,000

You are considering two options for manufacturing a typical product: 1. You continue to use an old machine now in use which was bought 8 years ago at $12,000. It has been fully depreciated but can be sold for $1,300. If kept, it could be used for 3 more years (romaining useful life), at the end of which time it would have no salvage value. The annual operating and maintenance costs amount to $10,000 for the old machine. 2. You purchase a brand new machine at an invoice price of $15,000 to replace the prosont equipment. Because of the nature of the product manufactured, it also has an expected economic life of 3 years, and will have a salvage value of $3,400 at the end of that time. With the new machine, the expected operating and maintenance costs amount to $3,000 for the first year and $4.000 in each of the next two years. What is the opportunity cost of not replacing the old machine now? O S700 O $1,300 $2,000 O S10,000

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 12MC
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You are considering two options for manufacturing a typical product: 1. You continuo to use an old machine now in use which was bought 8 years ago at $12,000. It has been fully depreciated but can be sold for $1,300. If kept, it could be used for 3 more years (romaining useful life), at the end of which time it would have no salvage valuo. The annual operating and maintenance costs amount to $10,000 for the old machine. 2. You purchase a brand new machino at an invoice price of $15,000 to replace the prosent equipment. Becauso of the nature of the product manufactured, it also has an expected economic life of 3 years, and will have a salvage value of $3,400 at the end of that time. With the new machine, the expected operating and maintenance costs amount to $3,000 for the first year and $4.000 in each of the next two years. What is the opportunity cost of not replacing the old machine now? O S700 $1,300 $2,000 O s10,000
Transcribed Image Text:You are considering two options for manufacturing a typical product: 1. You continuo to use an old machine now in use which was bought 8 years ago at $12,000. It has been fully depreciated but can be sold for $1,300. If kept, it could be used for 3 more years (romaining useful life), at the end of which time it would have no salvage valuo. The annual operating and maintenance costs amount to $10,000 for the old machine. 2. You purchase a brand new machino at an invoice price of $15,000 to replace the prosent equipment. Becauso of the nature of the product manufactured, it also has an expected economic life of 3 years, and will have a salvage value of $3,400 at the end of that time. With the new machine, the expected operating and maintenance costs amount to $3,000 for the first year and $4.000 in each of the next two years. What is the opportunity cost of not replacing the old machine now? O S700 $1,300 $2,000 O s10,000
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