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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
MedCo is a large manufacturing company, currently using a large printing press in its operations, and is considering two replacements: the PDX341 and PDW581. The PDX341 costs £500,000 and has annual maintenance costs of £10,000 for the first 5 years and £15,000 for the following 5 years. After 10 years, MedCo would scrap the PDX341 (salvage value is zero). In contrast, PDW581 costs £50,000 and requires maintenance of £30,000 a year for its 10-year life. The salvage value of the PDW581 would be zero in 10 years. MedCo must replace its current printing press because it has stopped functioning. Assume that MedCo has a 10% cost of capital and that all cash flows are after tax.
Required: Use the NPV approach to calculate which replacement press is the more appropriate.
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