Should the company keep the old line or replace

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Reference no: EM132169157

Question: JMJ Inc. bought a manufacturing line 5 years ago for $35,000,000. At that time it was estimated to have a service life of 10 years and salvage value at the end of its service life of $10,000,000. JMJ's CFO recently proposed to replace the old line with a modern line expected to last 15 years and cost $95,000,000. This line will provide $5,000,000 savings in annual operating and maintenance costs, increase revenues by $2,000,000, and have a $15,000,000 salvage value (after 15 years). The seller of the new line is willing to accept the old line as a trade-in for its current fair market value, which is $12,000,000. The CFO estimates that if the old line is kept for 5 more years, its salvage value will be $6,000,000. If the JMJ's MARR is 8% per year, should the company keep the old line or replace it with the new line?

Reference no: EM132169157

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