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.
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
Section: Chapter Questions
Problem 1PS
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do not use excel please. show formula and solution
Transcribed Image Text: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.
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