Question :
Hungry and Feed Foundation is a non-profit organization that has a cost of capital of 10 %. The foundation is supposing the replacement of a piece of equipment. The old machine has a book value of $3,000 and a residual estimated life of 5 years with no salvage value at that time. The salvage value of the old machine is presently $1,500. The new equipment can cost $10,000. It has an estimated life of 5 years with no salvage value then. Annual cash operating costs are $4,000 for the old machine and $2,000 for the new machine.
a. Refer to Feed the Hungry Foundation. What is the current value of the operating cash outflows for the old machine?
b. a. Refer to Feed the Hungry Foundation. What is the current value of the operating cash outflows for the new machine?
c. a. Refer to Feed the Hungry Foundation. What is the current value of salvage value of the old machine if it is replaced now?
d. a. Refer to Feed the Hungry Foundation. Would you advise the organization to replace the machine?