Q1) Skates Company is interested in replacing molding machine with new improved model. Old machine has salvage value of $20,000 now and predicted salvage value of $4,000 in six years, if rebuilt. If old machine is kept, it should be rebuilt in one year at forecasted cost of $40,000.
New machine costs $160,000 and has forecasted salvage value of $24,000 at the end of six years. If bought, the new machine will permit cash savings of $40,000 for each of first three years, and $20,000 for each year of its remaining six-year life.
Determine the net present value of buying new machine if company has required rate of return of 14%?