An automobile company is investigating the advisability of converting a plant that manufactures economy cars into one

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An automobile company is investigating the advisability of converting a plant that manufactures economy cars into one that will make retro sports cars. The initial cost for equipment conversion will be $200 million with a 20% salvage value anytime within a 5-year period. The cost of producing a car will be $21,000, but it is expected to have a selling price of $33,000 to dealers. The production capacity for the first year will be 4000 units. At an interest rate of 12% per year, by what uniform amount will production have to increase each year in order for the company to recover its investment in 3 years?


Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Engineering economy

ISBN: 978-0073376301

7th Edition

Authors: Leland Blank, Anthony Tarquin

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