Rex Products has been considering the purchase of a new machine. The existing machine will operate for 4 more years and will then have a zero disposal value. If the machine is disposed of now, it may be sold for $60,000. The new machine costs $250,000 and will result in labour savings of $60,000 in additional cash inflows each year.
What is the net present value of the investment, assuming that the cost of capital is 10%? Would the company want to purchase the new machine?
- $(200); no
- $(59,800); no
- $59,800; yes
- $200; yes