Question

Cherry, Inc., currently has a machine that costs $10,000 per year to operate. The machine can produce 50,000 units per year. Three years ago the company borrowed $200,000 to purchase the machine; it still owes $125,000 of that amount. Cherry could sell the machine for $70,000 and purchase a new, more efficient machine at a cost of $220,000. The new machine can produce 85,000 units per year; its annual operating costs would be $12,000.

Required
Identify each piece of information in this scenario and indicate whether it is relevant or irrelevant to the decision to purchase the new machine.



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  • CreatedFebruary 21, 2014
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