Kalorie Cola is considering buying a special-purpose bottling machine for $28,000. It is expected to have...

 

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Kalorie Cola is considering buying a special-purpose bottling machine for $28,000. It is expected to have a useful life of 7 years with a zero disposal price. The plant manager estimates the following savings in cash-operating costs: YEAR 1 2 3 4 5 6 7 Total AMOUNT $10,000 8,000 6,000 5,000 4,000 3,000 3,000 $39,000 The Plant Manager argues that, since the total cash savings $39,000 exceed the outlay $28,000, Kalorie Cola should definitely purchase the machine. Explain to the Plant Manager why his logic for purchasing the machine is flawed. Why can't we compare the total cash savings with the machine cost? What are the disadvantages of using pay period as the decision-making tool for projects? Kalorie Cola is considering buying a special-purpose bottling machine for $28,000. It is expected to have a useful life of 7 years with a zero disposal price. The plant manager estimates the following savings in cash-operating costs: YEAR 1 2 3 4 5 6 7 Total AMOUNT $10,000 8,000 6,000 5,000 4,000 3,000 3,000 $39,000 The Plant Manager argues that, since the total cash savings $39,000 exceed the outlay $28,000, Kalorie Cola should definitely purchase the machine. Explain to the Plant Manager why his logic for purchasing the machine is flawed. Why can't we compare the total cash savings with the machine cost? What are the disadvantages of using pay period as the decision-making tool for projects?

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The Plant Managers logic for purchasing the machine based solely on comparing the total cash savings ... View the full answer