Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management waspresented with the following information to assist in their decision:• The old machine was purchased three years ago for $318,000 and has a current book value using straight-line depreciation of$186,000.• The old machine incurs operating expenses of $32,000 per year.• The current disposal value of the old machine is $81,000; if it is kept nine more years, its remaining value would be $14,000.• The replacement machine would cost $237,000 and have a useful life of nine years.• The replacement machine has an expected salvage value of $69,000 after nine years.• The replacement machine would require $12,000 per year in operating expenses.RequiredCalculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced?Keep OldMachineTotal costsShould the old machine be replaced?Purchase NewMachine

Depreciation is the process of reducing the value of the assets. It is a non-cash expense of the…

esla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management resented with the following information to assist in their decision: The old machine was purchased three years ago for $318,000 and has a current book value using straight-line dep $186,000. • The old machine incurs operating expenses of $32,000 per year. • The current disposal value of the old machine is $81,000; if it is kept nine more years, its remaining value would be • The replacement machine would cost $237,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $69,000 after nine years. The replacement machine would require $12,000 per year in operating expenses. Required

esla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management resented with the following information to assist in their decision: The old machine was purchased three years ago for $318,000 and has a current book value using straight-line dep $186,000. • The old machine incurs operating expenses of $32,000 per year. • The current disposal value of the old machine is $81,000; if it is kept nine more years, its remaining value would be • The replacement machine would cost $237,000 and have a useful life of nine years. • The replacement machine has an expected salvage value of $69,000 after nine years. The replacement machine would require $12,000 per year in operating expenses. Required

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Tesla management are trying to decide whether to keep an older piece of machinery or buy a replacement. Management was presented with the following information to assist in their decision: A machine purchased three years ago for $314,000 has a current book value using straight-line depreciation of $187,000; its operating expenses are $38,000 per year. A replacement machine would cost $237,000, have a useful life of ten years, and would require $9,000 per year in operating expenses. It has an expected salvage value of $74,000 after ten years. The current disposal value of the old machine is $83,000; if it is kept ten more years, its residual value would be $14,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Keep Old Machine Total costs Should the old machine be replaced? Purchase New Machine I Yes
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