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 ₱85,000 each year for 4 years and then be scrapped for ₱5,000 residual value. The new machine requires an investment of ₱40,000 and would have out-of-pocket costs of ₱79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% 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 ₱85,000 each year for 4 years and then be scrapped for ₱5,000 residual value. The new machine requires an investment of ₱40,000 and would have out-of-pocket costs of ₱79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...

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It is desired to determine the present economic value of an old machine byconsidering 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 ₱85,000 each year for 4 years and then be scrapped for ₱5,000 residual value. The new machine requires an investment of ₱40,000 and would have out-of-pocket costs of ₱79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.Ans: ₱11,200
It is desired to determine the present economic value of an old machine by considering ofhow it compares with the best modern machine that could replace it. The old machine isexpected to require out-of-pocket cost of ₱85,000 each year for 4 years and then be scrappedfor ₱5,000 residual value. The new machine requires an investment f ₱40,000 and wouldhave out-of-the-pocket costs of ₱79,000 a year for 8 years and then zero salvage value.Invested capital should earn a minimum return of 15% before taxes. Determine the presentvalue of the old machine.
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