Answer:
Option of the new extruder is better by $14,411.16
Explanation:
The present value of each option needs to be determined in order that the cheaper option in present value terms can be recommended.
Present value of new extruder=$50,000/(1+12%)^0+$5000/(1+12%)^1+$5000/(1+12%)^2+$5000/(1+12%)^3+$5000/(1+12%)^4+$5000/(1+12%)^5+$5000/(1+12%)^6-$3000/(1+12%)^6=$ 69,037.14
The discount factor each year=1/(1+r)^n where is 12% discount rate and n is the year
resent value of old extruder=$30,000/(1+12%)^0+$13,000/(1+12%)^1+$13000/(1+12%)^2+$13000/(1+12%)^3+$13000/(1+12%)^4+$13000/(1+12%)^5+$13000/(1+12%)^6=$ 83,448.30
The first option is better since it has a lower preset value of costs of $ 69,037.14
Difference in PVs= 83,448.30-69,037.14=$14,411.16