A company is considering to buy a new machine for the production of its product. Currently the company is producing 1,000 products per hour with 5 workers that are paid $10 per hour each. The price of the new machine under consideration is $22,000 with useful life of 10 years and the salvage value is estimated to be $500. The annual operating & maintenance cost of the new machine is $2,000 and requires one skilled operator, that will be paid from $24 per hour, and can produce 1,500 products per hour. If the company uses MARR of 8% p.a., answer the following: (a) What is the breakeven point? (use AW). (b) What is the interpretation of this breakeven point? Explain. (c) If the company needs 180,000 products per year, should they buy the machine? Show all work. (d) What should be the total annual operating & maintenance cost of the machine in order to breakeven at the production level of 200,000 products? Note: You should first define your variable.

A company is considering to buy a new machine for the production of its product. Currently the company is producing 1,000 products per hour with 5 workers that are paid $10 per hour each. The price of the new machine under consideration is $22,000 with useful life of 10 years and the salvage value is estimated to be $500. The annual operating & maintenance cost of the new machine is $2,000 and requires one skilled operator, that will be paid from $24 per hour, and can produce 1,500 products per hour. If the company uses MARR of 8% p.a., answer the following: (a) What is the breakeven point? (use AW). (b) What is the interpretation of this breakeven point? Explain. (c) If the company needs 180,000 products per year, should they buy the machine? Show all work. (d) What should be the total annual operating & maintenance cost of the machine in order to breakeven at the production level of 200,000 products? Note: You should first define your variable.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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