A steel construction company has one unit of production machinery purchased 5 years ago at a price of with a price of 120,000, projected technical life of 10 years with a residual value of 20,000. The production machine generates an average income of 25,000/year with an average operating cost of Rp 8,000. Currently a new machine with more advanced technology is available, the estimated price is 150,000. If the company purchases an advanced technology machine, it is estimated that the production will increase
A steel construction company has one unit of production machinery purchased 5 years ago at a price of with a price of 120,000, projected technical life of 10 years with a residual value of 20,000. The production machine generates an average income of 25,000/year with an average operating cost of Rp 8,000. Currently a new machine with more advanced technology is available, the estimated price is 150,000. If the company purchases an advanced technology machine, it is estimated that the production will increase to 50,000/year without any increase in operating costs and the technical life of the machine is estimated to be 8,000 years. operating costs and the technical life of the machine is estimated at 8 years with a residual value of 55.000. A replacement is carried out, the old machine is sold for 60,000 but the price recorded by the company is 70,000.
Please describe:
a. Cash flow diagram of the two alternatives
b. Evaluate and determine the best option if the interest rate is 8%/year.
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