A breakfast cereal company changed its packaging lines 4 years ago, however, a new opportunity to change to more efficient lines presents itself. The company analyzes whether it is convenient to change the packaging lines before the end of the estimated useful life of the current lines, which should continue to function for another 4 years, or if the previous change is convenient, if the change is better this year or in which of the following years before the end of the useful life would be more convenient. The cost of the proposed new line is $2,200,000.00 with an annual operating cost of $45,000.00, an operating life of 10 years, and an end-of-life salvage of $350,000.00 Perform a replacement analysis with i =25% for a typical defending and challenging pack line with estimated defending line costs shown. NEXT YEAR SUBSEQUENT YEAR SUBSEQUENT YEAR LAST YEAR SALVAGE VALUE AT 4 YEARS VALUE BEGGINING OF THE YEAR ANUAL COST OF OPPERATION 60,000 70,000 85,000 85,000 1,200,000 1,000,000 600,000 200,000 0
A breakfast cereal company changed its packaging lines 4 years ago, however, a new opportunity to change to more efficient lines presents itself. The company analyzes whether it is convenient to change the packaging lines before the end of the estimated useful life of the current lines, which should continue to function for another 4 years, or if the previous change is convenient, if the change is better this year or in which of the following years before the end of the useful life would be more convenient. The cost of the proposed new line is $2,200,000.00 with an annual operating cost of $45,000.00, an operating life of 10 years, and an end-of-life salvage of $350,000.00 Perform a replacement analysis with i =25% for a typical defending and challenging pack line with estimated defending line costs shown. NEXT YEAR SUBSEQUENT YEAR SUBSEQUENT YEAR LAST YEAR SALVAGE VALUE AT 4 YEARS VALUE BEGGINING OF THE YEAR ANUAL COST OF OPPERATION 60,000 70,000 85,000 85,000 1,200,000 1,000,000 600,000 200,000 0
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A breakfast cereal company changed its packaging
lines 4 years ago, however, a new opportunity to
change to more efficient lines presents itself. The
company analyzes whether it is convenient to
change the packaging lines before the end of the
estimated useful life of the current lines, which
should continue to function for another 4 years, or if
the previous change is convenient, if the change is
better this year or in which of the following years
before the end of the useful life would be more
convenient. The cost of the proposed new line is
$2,200,000.00 with an annual operating cost of
$45,000.00, an operating life of 10 years, and an
end-of-life salvage of $350,000.00 Perform a
replacement analysis with i =25% for a typical
defending and challenging pack line with estimated
defending line costs shown.
VALUE BEGGINING OF THE YEAR ANUAL COST OF OPPERATION
1,200,000
1,000,000
NEXT YEAR
60,000
70,000
SUBSEQUENT YEAR
SUBSEQUENT YEAR
600,000
85,000
LAST YEAR
200,000
85,000
SALVAGE VALUE AT 4 YEARS
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