MGMT 8500: $22-capstone v80 Appendix Four (Equipment Replacement Decision) Objective: The proposed manufacturing plant has a food packaging equipment. The analysis would provide Jacob with decision support as to use that equipment or procure a new one. Scenario: The current equipment was purchased eight years ago for $ 750,000 and has eight useful years remaining. The new machine will cost $380,000 and will have the same useful life remaining as the old machine and will have zero disposal value. Currently the annual operating cost is $ 110,000 and will reduce by 50% if the new equipment is purchased. If the new equipment is procured, it will need to be shut down once a year for maintenance purposes. Opportunity cost of the shut down period is as follows: $6,000 in each of the years 1-3 $8,000 in each of the years 4 and 5 $ 10,000 in each of the years 6 and 7 The old equipment will have limited use and can only fetch $ 120,000 when disposed off at this time. Methodology: The group would calculate the net advantage/ disadvantage of buying the new equipment by applying a discount rate of 10% wherever applicable. 0 O 20C ASUS O