NPV of purchasing the new machine.
Skates Company is interested in replacing a molding machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in six years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000.
The new machine costs $160,000 and has a predicted salvage value of $24,000 at the end of six years. If purchased, the new machine will allow cash savings of $40,000 for each of the first three years, and $20,000 for each year of its remaining six-year life.
What is the net present value of purchasing the new machine if the company has a required rate of return of 14%?