A small company that manufactures vibration isolation platforms is trying to decide whether it should replace the current assembly system (D), which is rather labor intensive, now or 1 year from now with a system that is more automated (C). Some components of the current system can be sold immediately for $9000, but they will be worthless hereafter. The operating cost of the existing system is $192,000 per year. System C will cost $320,000 with a $50,000 salvage value after 4 years. Its operating cost will be $68,000 per year. If you are told to do a replacement analysis using an interest rate of 10% per year, which system do you recommend?
A small company that manufactures vibration isolation platforms is trying to decide whether it should replace the current assembly system (D), which is rather labor intensive, now or 1 year from now with a system that is more automated (C). Some components of the current system can be sold immediately for $9000, but they will be worthless hereafter. The operating cost of the existing system is $192,000 per year. System C will cost $320,000 with a $50,000 salvage value after 4 years. Its operating cost will be $68,000 per year. If you are told to do a replacement analysis using an interest rate of 10% per year, which system do you recommend?
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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Question
A small company that manufactures vibration isolation
platforms is trying to decide whether it
should replace the current assembly system (D),
which is rather labor intensive, now or 1 year from
now with a system that is more automated (C).
Some components of the current system can be
sold immediately for $9000, but they will be
worthless hereafter. The operating cost of the existing
system is $192,000 per year. System C will
cost $320,000 with a $50,000 salvage value after
4 years. Its operating cost will be $68,000 per year.
If you are told to do a replacement analysis using
an interest rate of 10% per year, which system do
you recommend?
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