A manufacturer is considering replacing a production machine
tool. The new machine
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Question: A manufacturer is considering replacing a production machine
tool. The new machine
would cost $37…
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would cost $37000, have a life of 4 years, have no salvage
value, and save the fum $5000 per year
in direct labor costs and $2000 per year indirect labor costs.
The existing machine tool was
purchased 4 years ago at a cost of $40000. It will last 4 more
years and have no salvage value
at the end of that time. It could be sold now for $10000 cash.
Assume money is worth 8%, and that
the difference in taxes, insurance, and so forth, for the two
alternatives is negligible. Determine
whether or not the new machine should be purchased.
