Med-Co NPV Calculation
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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 five years and £15,000 for the next five years. After 10 years, the PDX341 will be scrapped (salvage value is zero). In contrast, the PDW581 can be acquired for £50,000 and requires maintenance of £30,000 a year for its 10-year life. The salvage value of the PDW581 is expected to be zero in 10 years.
Complete the following:
Assuming that MedCo must replace their current printing press (it has stopped functioning), has a 10% cost of capital and all cash flows are after tax, which replacement press is the more appropriate as calculated by using the NPV approach?
Around 500 words and without internet copy/paste please.
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