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X Company is trying to decide whether to continue using old equipment to make Product...

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Accounting

X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have lower operating costs. The following information is available: The new equipment will cost $45,000. Disposal value at the end of its 6-year useful life will be $6,000. The old equipment was purchased 3 years ago for $20,000. It can be sold immediately for $10,000 but will have zero disposal value in 6 years. Maintenance work, costing $2,500, will be necessary on the old equipment in Year 4. The new equipment will result in $10,000 of operating cost savings each year. Assuming a discount rate of 7%, what is the net present value of replacing the old equipment with the new equipment? [Note: Use the Present Value tables in the Coursepack.] A: $9,510 B: $11,887 C: $14,859 D: $18,574 E: $23,217 F: $29,021

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