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Author Question: Replacing old equipment at an immediate cost of $5000 and $7000 six years from now will result in a ... (Read 404 times)

geodog55

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Question 1

LD Winery expects a demand of 10 000 bottles per year for a special purpose wine for six years. Net return per unit is $6.10. To produce the wine, LD must buy equipment costing $200 000 with a life of six years and a salvage value of $10 000 after six years. The company estimates that repair costs will be $8000 per year during Years 2 to 6. Should LD invest in the equipment if it requires a return of 16% on its investment?

Question 2

Replacing old equipment at an immediate cost of $5000 and $7000 six years from now will result in a savings of $3000 semi-annually for ten years. At 11% compounded annually, should the old equipment be replaced?


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Marked as best answer by geodog55 on Jun 7, 2019

xoxo123

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