New Jersey's Kanu Surf Company ships swimwear to Puerto Rico and more Caribbean Islands. 5 years ago
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Question:
New Jersey's Kanu Surf Company ships swimwear to Puerto Rico and more Caribbean Islands. 5 years ago they bought a new automatic packaging machine for $ 150,000. The annual operating, maintenance and insurance costs, as well as the Market value of the machine for each of the 10 years of its useful life is presented in the table below:
Year | Operation cost | maintenance costs | insurance cost | market value |
1 | $16,000 | $4,000 | $15,000 | $80,000 |
2-10 | Increases $4000 per year | Increases $3000 per year | decreases $1000 per year | decreases $5,000 per year |
Now the company is evaluating the remaining 5 years of its investment to
decide the optimal time to replace the machine. Kanu Surf uses 25% as his rate
minimum acceptable return after paying income taxes and
depreciates your assets using the MACRS method. To make a decision, Kanu Surf
want to use inflation in your analysis (the average inflation since they bought the
machine so far).
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