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: The old machine was purchased three years ago for $303,000 and has a current book value using straight-line depreciation of $178,000. The old machine incurs operating expenses of $38,000 per year. The current disposal value of the old machine is $80,000; if it is kept ten more years, its remaining value would be S 16,000. The replacement machine would cost $222,000 and have a useful life of ten years. The replacement machine has an expected salvage value of $67,000 after ten years. The replacement machine would require $13,000 per year in operating expenses.

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: The old machine was purchased three years ago for $303,000 and has a current book value using straight-line depreciation of $178,000. The old machine incurs operating expenses of $38,000 per year. The current disposal value of the old machine is $80,000; if it is kept ten more years, its remaining value would be S 16,000. The replacement machine would cost $222,000 and have a useful life of ten years. The replacement machine has an expected salvage value of $67,000 after ten years. The replacement machine would require $13,000 per year in operating expenses.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

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