High School

Please view the following video before answering this question. Click here to watch the video A company owns a 5-year-old turret lathe that has a book value of $25,000. The present market value for the lathe is $14,000. The expected decline in market value is $2,000 /year to a minimum market value of $3,600; maintenance plus operating costs for the lathe equal $4,070/ year. A new turret lathe can be purchased for $43,000 and will have an expected life of 8 years. The market value for the turret lathe is expected to equal $43,000(0.70)k at the end of year k. Annual maintenance and operating cost is expected to equal $1,850. Based on a 12% MARR, should the old lathe be replaced now? Use an equivalent uniform annual cost comparison, a planning horizon of 7 years, and the cash flow approach. EUAC for keeping old turret lathe: $ EUAC for replacing turret lathe: $ Recommendation: Click here to access the TVM Factor Table Calculator For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 52.75. The absolute cell tolerance is ±1 eTextbook and Media Attempts: 0 of 3 used

Answer :

The equivalent uniform annual cost (EUAC) for keeping the old turret lathe is $24,347. The EUAC for replacing the turret lathe is $23,435. Therefore, we should not replace the old turret lathe.

The EUAC for keeping the old turret lathe is calculated by taking the present value of the future cash flows and dividing by the number of years. The future cash flows include the annual maintenance and operating costs, the salvage value of the old lathe, and the cost of keeping the old lathe for an additional 2 years.

The EUAC for replacing the turret lathe is calculated by taking the present value of the future cash flows and dividing by the number of years. The future cash flows include the purchase price of the new lathe, the annual maintenance and operating costs, and the salvage value of the new lathe.

In this case, the EUAC for keeping the old turret lathe is slightly lower than the EUAC for replacing the turret lathe. Therefore, we should not replace the old turret lathe.

To learn more about salvage value click here : brainly.com/question/28387066

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