**Milling Machine Cost Analysis**A milling machine equipped with enhanced CNC controls for high-speed machining of free-form parts was purchased two years ago for $195,000. The company is considering upgrading to a recently available, faster model with the capability of controlling up to 8 axes, priced at $240,000. The current machine can be sold in today's market for $105,000. Over the past two years, its operating cost has been $30,000 annually. Determine the value that should be used as P for the currently owned machine.**Options:**- a. $105,000- b. $240,000- c. $30,000- d. $195,000The correct choice is **a. $105,000**.

One of the fundamental analyses in capital budgeting is replacement analysis. Physical deterioration, changes in economic conditions, and quick technological advances all have the potential to shorten an asset's life span and make it outdated sooner than anticipated. There are two main justifications for thinking about replacing equipment: physical damage to the individual parts or obsolescence of the equipment. The replacement of assets presents an economic opportunity for the company. Physical impairment only relates to alterations Initial cost, initial projected salvage value, annual operating and maintenance costs, and remaining life are all unimportant for replacement consideration. The machine that is now possessed cost $195000 at purchase. A more contemporary speedier model costs $240,000. The price of the currently owned machine is $105,000. Its OC is $60000 for two years, or $30000 per year. The amount of $195000 should be used as P for the machine that is currently owned ( if P being the initial cost). however, if P is the selling price of the machine that is currently possessed, then P = $105,000. Therefore, the amount that should be used as P for the machine that is currently owned will be the machine's current market worth, which is $105,000. Hence option"a"is the correct option.

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A milling machine with enhanced CNC controls that allow for high-speed machining of free-form parts was purchased 2 years ago for $195,000. The company wants to purchase a recently available faster model with control up to 8 axes for $240,000. The presently owned machine can be sold today for $105,000. Its operating cost over the past 2 years has been $30,000 per year. The value that should be used as P for the presently owned machine is: (choose one) a. $105,000 Ob. $240,000 О с. $30,000 O d. $195,000

A milling machine with enhanced CNC controls that allow for high-speed machining of free-form parts was purchased 2 years ago for $195,000. The company wants to purchase a recently available faster model with control up to 8 axes for $240,000. The presently owned machine can be sold today for $105,000. Its operating cost over the past 2 years has been $30,000 per year. The value that should be used as P for the presently owned machine is: (choose one) a. $105,000 Ob. $240,000 О с. $30,000 O d. $195,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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