(Example Problem No. 3) It is desired to determine the present economic value of an old machine by considering how it co

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Example Problem No 3 It Is Desired To Determine The Present Economic Value Of An Old Machine By Considering How It Co 1 (85.65 KiB) Viewed 136 times

(Example Problem No. 3) It is desired to determine the present economic value of an old machine by considering how it compares with the best modern machine that could replace it. The old machine is Use ROR on additional investment and AWM 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 15% before taxes. Determine the present value of the old machine. Old Machine 85,000 New Machine (x2) 40,000 Original Cost(Co) Life (L) Interest (1) Original Cost Co Life (L) Investmen 4 years 15% 8 79,000 5,000 79,00000.15*1145,168.50 Scrap Value (C) Depreciatio Total cost: 85,000 - 5,000 1.15-1 (.15)= 16,021.23 45, 168.50 + 40,000 +16,021.23 =101,109.13 Therefore the present value of an Old machine is 216,021.23