Question: Delta Corp is facing another challenge as they have found a new melting pot that is much more efficient than the old one. Increased efficiency

Delta Corp is facing another challenge as they have found a new melting pot

that is much more efficient than the old one. Increased efficiency is due to much less

material waste and in consequence, less labour is needed. The cost for a new melting

pot is 800 000kr and if they sell the old one, they will get 50 000kr however in the

books it has a net book value of 100 000kr. A new melting pot will be depreciated

over 5 years and at 50 000 kg of metal depreciation per kg will be 6kr per kg of metal.

The price per kg of metal is 50kr regardless of melting pot. The planning department

have made the following figures comparing the Old and New melting pot. The

company has a required return of 11%. Is it viable to go ahead and buy a new

melting pot?

Old:

Sales price: 50kr

Material: 22kr

Labour: 3kr

OH: 5kr

Depreciation: 4kr

PROFIT PER KG: 16kr

NEW:

Sales price: 50kr

Material: 18kr

Labour: 2.50kr

OH: 5kr

Depreciation: 6kr

PROFIT PER KG: 18.50kr

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