# (Cash-flow analysis, replacing a machine) The Easy Sight Company manufactures sunglasses. The company has two machines, each...

## Question:

(Cash-flow analysis, replacing a machine) The Easy Sight Company manufactures sunglasses. The company has two machines, each of which produces 1,000 sunglasses per month. The book value of each of the old machines is

$10,000, and their expected life span is 5 years from today. The machines are being depreciated on a straight-line basis to zero salvage value over their remaining lifetime. The company assumes it will be able to sell a machine today for$6,000. The price of a new machine is $20,000, and its expected life span is 5 years. The new machine will save the company$0.85 for every pair of sunglasses produced.

Demand for sunglasses is seasonal. During the 5 months of the summer

(May–September), demand is 2,000 sunglasses per month, while during the winter months, it falls down to 1,000 per month.

Assuming that due to insurance and storage costs it is uneconomical to store sunglasses at the factory. Should Easy Sight replace its two old machines with new ones if its discount rate is 10% and its corporate tax rate is 25%? Assume that the current date is 1 January 2017. Depreciation and all other cash flows are taken at the end of December of each year.

Fantastic news! We've Found the answer you've been seeking!

## Step by Step Answer:

Related Book For
Question Posted: