What should be the salvage value of the def model

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Reference no: EM13332989

You need a lathe (tomo) for your machine shop. Your best estimate is that you will need it for the next 10 years. After much search, you narrowed down you options to two models: ABC (call it "A") and DEF (call it "D").

You were able put together the following financial data to help you decide:

 

A

D

First Cost

$25,000

$32,000

0 & M Annual Cost

$11,000 /yr

$9,700 / yr

Useful life

10 years

14 years

Salvage Value (at end of useful life)

$3,000

$2,000

If the interest rate relevant to your analysis is 12%, what should be the salvage value of the DEF model at the end of 10 years so that you would be indifferent between the two models?

Reference no: EM13332989

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