Nelson Business is considering purchasing an overhead conveyor system for ($ 350000) that will have a residual

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Nelson Business is considering purchasing an overhead conveyor system for \(\$ 350000\) that will have a residual value of \(\$ 5250\) after eight years. This conveyor system would be depreciated on a straightline basis. The conveyor system would reduce labour costs in despatch by \(\$ 105000\) per year. Experience with such systems indicates that \(\$ 12250\) would be spent each year on maintenance to keep it operating properly. Ownership of the new conveyor system also would increase property taxes and insurance by \(\$ 3500\) per year. Nelson's required rate of return is 16 per cent. Required:

a Prepare an analysis to determine whether the purchase of this overhead conveyor system is an acceptable capital expenditure for Nelson.

b What is the highest price Nelson should be willing to pay for the overhead conveyor system?

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Accounting Information For Business Decisions

ISBN: 9780170253703

2nd Edition

Authors: Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons

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