An aluminum fabrication plant in Manitoba is studying a replacement decision for its old waterjet cutting...
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An aluminum fabrication plant in Manitoba is studying a replacement decision for its old waterjet cutting machine, purchased 7 years ago at $130,000, with a new more precise waterjet cutting machine. Based on market studies, the old waterjet cutting machine will have to be replaced some time before the end of the fourth year. The market value of the old waterjet cutting machine is currently estimated at $49,000. Other related data for the old waterjet cutting machine are summarized in the table below. The MARR is 10%. Remaining service Salvage value life in years b) c) 0 1 2 3 4 ($) 49,000 31,500 19,875 15,656 6,742 Operating and maintenance cost (S) 17,000 21,320 26,806 33,774 a) Determine the EAC (Equivalent Annual Cost) for the old waterjet cutting machine over one year, two years, three years and four years of remaining service life. Determine the remaining economic life of the old waterjet cutting machine If the EAC of the new waterjet cutting machine is $35,000, should the plant replace the old machine with the new one now? d) what could be considered as a "sunk cost" in this example? (Hint: no calculations are needed) An aluminum fabrication plant in Manitoba is studying a replacement decision for its old waterjet cutting machine, purchased 7 years ago at $130,000, with a new more precise waterjet cutting machine. Based on market studies, the old waterjet cutting machine will have to be replaced some time before the end of the fourth year. The market value of the old waterjet cutting machine is currently estimated at $49,000. Other related data for the old waterjet cutting machine are summarized in the table below. The MARR is 10%. Remaining service Salvage value life in years b) c) 0 1 2 3 4 ($) 49,000 31,500 19,875 15,656 6,742 Operating and maintenance cost (S) 17,000 21,320 26,806 33,774 a) Determine the EAC (Equivalent Annual Cost) for the old waterjet cutting machine over one year, two years, three years and four years of remaining service life. Determine the remaining economic life of the old waterjet cutting machine If the EAC of the new waterjet cutting machine is $35,000, should the plant replace the old machine with the new one now? d) what could be considered as a "sunk cost" in this example? (Hint: no calculations are needed)
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Related Book For
Principles Of Managerial Finance
ISBN: 9781292018201
14th Global Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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