Wu Lighting Company is considering replacing an old, relatively inefficient vertical drill machine… 1 answer below »

Wu Lighting Company is considering replacing an old, relatively inefficient vertical drill machine that was purchased 7 years ago at a cost of $10,000. The machine had an original expected life of 12 years and a zero estimated salvage value at the end of that period. The divisional manager reports that a new machine can be bought and installed for $12,000. Further, over its 5-year life, the machine will expand sales from $10,000 to $11,500 a year and will reduce the usage of labor and raw materials sufficiently to cut annual operating costs from $7,000 to $5,000. The new machine has an estimated salvage value of $2,000 at the end of its 5-year life.

The old machine’s current market value is $1,000; the firm’s MARR is 15%.

(a) Should the new machine be purchased now?

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now

(b) What current market value of the old machine would make the two options equal?

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *