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(~) t>/A -~ s. 2 CHEE 5369/6369 Quiz # 10 (closed book) Tuesday April 14, 2009 A lumber company that cuts fine woods for cabinetry is evaluating whether it should retain the current bleaching system (fair market value n~w !s_$5~,Q.Q.9),orreplace it with a new one. The relevant costs for each system are known or estimated. Use an interest rate of 10% per year to: 1. Perform the replacement analysis. What is your decision? 2. Determine the minimum market value of the current system needed to make the challenger replacement choice now. Is this a reasonable amount to expect for the current system? -J--- - .--- ------r\~"Z. First cost, $ Remaining life, years AOC, $ per year Salvage value, $ o Current system 382,000 (7 years ago) 5 160,000 New system 700,000 10
150,000 50,000 o IW ;;'; I 5 1-. i ...
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- Spring '11