Fudd and Nephews, Inc., purchased a small excavator for $100,000 two years ago. The excavatorwas supposed to generate a net benefit of $30,000 per year, but it has generated only $5,000 peryear. It is expected to generate the same amount of net benefit of $5,000 for the next four years,with a negligible market value after these four years. Another contractor offers to purchase themachine for $15,000 now. Fudd can get 13.0% on his investments. Should he sell the machine, orkeep using it for the remaining of its economic life?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Fudd and Nephews, Inc., purchased a small excavator for $100,000 two years ago. The excavator
was supposed to generate a net benefit of $30,000 per year, but it has generated only $5,000 per
year. It is expected to generate the same amount of net benefit of $5,000 for the next four years,
with a negligible market value after these four years. Another contractor offers to purchase the
machine for $15,000 now. Fudd can get 13.0% on his investments. Should he sell the machine, or
keep using it for the remaining of its economic life?

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