Part a.) An engineer with Calahan Technologies calculated the AW of cost values shown for a presently owned machine using estimates she obtained from the vendor and company records. A challenger has an economic service life of 7 years with an AW of $-86,000 per year. Assume that all future costs remain as estimated and the challenger's technology will definitely replace that of the defender within 5 years. When should the company purchase the challenger? Retention Period, Years AW of Costs, $ per Year 1 -92,000 -81,000 3 -87,000 4 -89,000 -95,000
Part a.) An engineer with Calahan Technologies calculated the AW of cost values shown for a presently owned machine using estimates she obtained from the vendor and company records. A challenger has an economic service life of 7 years with an AW of $-86,000 per year. Assume that all future costs remain as estimated and the challenger's technology will definitely replace that of the defender within 5 years. When should the company purchase the challenger? Retention Period, Years AW of Costs, $ per Year 1 -92,000 -81,000 3 -87,000 4 -89,000 -95,000
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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Part a
Transcribed Image Text:Part a.) An engineer with Calahan Technologies calculated the AW of cost values shown for a
presently owned machine using estimates she obtained from the vendor and company records. A
challenger has an economic service life of 7 years with an AW of $-86,000 per year. Assume that all
future costs remain as estimated and the challenger's technology will definitely replace that of the
defender within 5 years. When should the company purchase the challenger?
Retention Period, Years
AW of Costs, $ per Year
-92,000
-81,000
3
-87,000
4
-89,000
-95,000
Part b.) The costs and revenue projections for a new product made on the machine from Part a.) are
estimated below. What is the estimated profit at a production rate of 25% above breakeven?
Fixed cost = $592,000 per year
Production cost per unit $198
Revenue per unit = $330
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