The proposed manufacturing plant has food packaging equipment. The analysis would provide Adam with decision-support to use that equipment or procure a new one. 

Scenario: The current equipment was purchased eight years back for $ 750,000 and had seven good years remaining. The new machine will cost $ 450,000 and have the same useful life remaining as the old machine and zero disposal value. The annual operating cost is $ 80,000 and will reduce by 60% if the new equipment is purchased. If the existing equipment is retained, it will incur maintenance expenditure as follows: 

• $ 4,000 in each of the years 1-3 

• $ 6,000 in each of the years 4 and 5 

• $ 8,000 in each of the years 6 and 7 

The old equipment will have limited use and can only fetch $ 140,000 when disposed of at this time. 

Methodology: The group would calculate the net advantage/ disadvantage of buying the new equipment. They propose to ignore taxes and the time value of money.

Answer rating: 100% (QA)

Step 1 of 8 Accumulated depreciation The amount which represents the total depreciation calculated b... View the full answer