Runder 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:
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.
Dale Davis's cost of capital is 14%.
Required: Should the new machine be purchased? Why or why not?
$\begin{array}{lrr}&\text { Old Machine}&\text { New Machine }\
\text { Salaries } & \$ 40,000 & \$ 36,000 \
\text { Supplies } & 7,000 & 5,000 \
\text { Maintenance } & 9,000 & 5,000 \
\text { Total } & \$ 56,000 & \$ 46,000
\end{array}$

Question

Runder 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:
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.
Dale Davis's cost of capital is 14%.
Required: Should the new machine be purchased? Why or why not?
 $\begin{array}{lrr}&\text { Old Machine}&\text { New Machine }\
\text { Salaries } & \$ 40,000 & \$ 36,000 \
\text { Supplies } & 7,000 & 5,000 \
\text { Maintenance } & 9,000 & 5,000 \
\text { Total } & \$ 56,000 & \$ 46,000
\end{array}$

Quizplus · Accepted Answer

The Answer of Runder 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:
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.
Dale Davis's cost of capital is 14%.
Required: Should the new machine be purchased? Why or why not?
 $\begin{array}{lrr}&\text { Old Machine}&\text { New Machine }\
\text { Salaries } & \$ 40,000 & \$ 36,000 \
\text { Supplies } & 7,000 & 5,000 \
\text { Maintenance } & 9,000 & 5,000 \
\text { Total } & \$ 56,000 & \$ 46,000
\end{array}$

Runder Company Is Evaluating a Proposal to Purchase a New