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A lumber company that cuts fine woods for cabinetry is evaluating if it should retain the current bleaching system or replace it with the new one. The relevant costs of each system are known or estimated.

Current System

     First Cost seven years ago, $-450,000

     Remaining Life, years 5

     Current market value, $ 50,000

     Annual Operating Costs, $/year -$160,000

Future Salvage, $0.00

New System

     First Cost, $ 700,000

     Remaining Life, years 10

     Annual Operating Costs, $/year -150,000

     Future Salvage, $ 50,000

Use an interest rate of 10% per year to

a) Perform the replacement analysis and

b) Determine the minimum resale price needed to make the challenger replacement choice now.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92725048

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