Question: X Company is unhappy with a machine that they bought just a year ago for $41,000. It is considering replacing it with a new machine that will save significant operating costs. Operating costs with the current machine are $66,000 per year; operating costs with the new machine are expected to be $41,000 per year. Both machines will last for 4 more years.The current machine can be sold immediately for $5,000 but will have no salvage value at the end of 4 years. The new machine will cost $69,000 and have a salvage value of $2,000 in 4 years.
1) Assuming a discount rate of 7%, what is the net present value of replacing the current machine?