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One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased...

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Accounting

One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just three years earlier for $45,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $23,000, after which operating costs will be $62,000 a year. It will also require a maintenance check in the second year that is estimated to cost $2,500.

A new machine will cost $85,000, but it will be more efficient than the repaired machine, with annual operating costs of only $51,000.

Both the repaired machine and the new machine will last for five years, at which time the repaired one would be worthless, and new one would be worth $7,000. If it is not repaired, the damaged machine can be sold immediately for $6,000.

Assuming a discount rate of 7%, what is the net present value of buying the new machine instead of repairing the damaged machine?

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