Please show work! s pt X Couipally ?s coil ?lering replacing one of its illn(l?l
ID: 2392961 • Letter: P
Question
Please show work!
s pt X Couipally ?s coil ?lering replacing one of its illn(l?lHN ?ll orlry to Nine ('prtnt?"g (ntN Operating (nits with the ('"mit machine Are $70JXO p(? yrar: ()perating (ints witli 'le irw liarlin". are rxp?tevl to he $49.00) per yvur The ilew ilinchine will (ost SG7,000 and will last for 4 yrais, at wlikii tiuie ?…an lx·™)kl fin $1,(XX) The clinmit illadiue will also Inst Ior 4 more yenis but will law. zm) Nalvag', valir Its (1rmt 'liqunal vilne is $0.00) ANNI 1111mg a (lirr":nt rate of 7%. whnt is the clifference betwrrn the net prr uit valie if X Colinusiv ni wn the current inat ?lie and the int ? rm st va it kreps the current machine? keveps the eurret machine AO S10.890 BO $15,790 CO $22.8 DO S33.200 EO $18 1.9FO $69.02Explanation / Answer
Correct Answer (A) $ 10894
Solution
Net Present Value of Old Machine
$ (237,104.79)
Net Present Value of New Machine
$ (226,210.46)
Difference
$ 10,894.33
Round off
$ 10,890.00
Net Present Value of Old Machine
Year
Cash Outflow(Operating Cost)
Discounting Factor at 7% discount
Discounted Cash inflow/ (Outflow)
1
$ (70,000.00)
0.9346
$ (65,420.56)
2
$ (70,000.00)
0.8734
$ (61,140.71)
3
$ (70,000.00)
0.8163
$ (57,140.85)
4
$ (70,000.00)
0.7629
$ (53,402.66)
NPV of Outflows
$ (237,104.79)
Net Present Value of New Machine
Year
Cost Of Machine
Disposal of Old Machine
Disposal of New Machine
Cash Outflow(Operating Cost)
Net Cash Inflow/(outflow)
Discounting Factor at 7% discount
Discounted Cash inflow/ Outflow
0
$ (67,000.00)
$ 6,000.00
$ (61,000.00)
1
$ (61,000.00)
1
$ (49,000.00)
$ (49,000.00)
0.935
$ (45,794.39)
2
$ (49,000.00)
$ (49,000.00)
0.873
$ (42,798.50)
3
$ (49,000.00)
$ (49,000.00)
0.816
$ (39,998.60)
4
$ 1,000.00
$ (49,000.00)
$ (48,000.00)
0.763
$ (36,618.97)
NPV of Outflows
$ (226,210.46)
Notes* Disposal of old machine is a benefit which can be earned only if new machine is purchased. Purchase of new machine and sale of old machine will not be discounted.
Net Present Value of Old Machine
$ (237,104.79)
Net Present Value of New Machine
$ (226,210.46)
Difference
$ 10,894.33
Round off
$ 10,890.00