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[answered] Marion Dexter Company is evaluating a proposal to purchase
Marion Dexter Company is evaluating a proposal to purchase a new machine that would cost $100,000 and have a salvage value of $10,000 in four years. It would provide annual operating cash savings of $10,000, as follows:
Old Machine | New Machine | |
Salaries | $40,000 | $36,000 |
Supplies | ?? 7,000 | ?? 5,000 |
Maintenance | ?? 9,000 | ?? 5,000 |
Total | $56,000 | $46,000 |
If the new machine is purchased, the old machine will be sold for its current salvage value of $20,000. If the new machine is not purchased, the old machine will be disposed of in four years at a predicted salvage value of $2,000. The old machine's present book value is $40,000. If kept, in one year the old machine will require repairs predicted to cost $35,000.
Marion Dexter's cost of capital is 14 percent.
Required:
Should the new machine be purchased? Why or why not??
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This question was answered on: Sep 18, 2020
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DATE ANSWEREDSep 18, 2020
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