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, at present or 1 year from now with a system that is more automated (C). Some components of the current system can be sold immediately for $9,500, but they will be worthless hereafter. The operating cost of the existing system is $161,000 per year. System C will cost $310,000with a $50,000 salvage value after 4 years. Its operating cost will be $65,000 per year. If you are told to do a replacement analysis using an interest rate of8% per year, which system would 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, at present or 1 year from now with a system that is more automated (C). Some components of the current system can be sold immediately for $9,500, but they will be worthless hereafter. The operating cost of the existing system is $161,000 per year. System C will cost $310,000with a $50,000 salvage value after 4 years. Its operating cost will be $65,000 per year. If you are told to do a replacement analysis using an interest rate of8% per year, which system would you recommend?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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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, at present or 1 year
from now with a system that is more automated (C). Some components of the current system can be
sold immediately for $9,500, but they will be worthless hereafter. The operating cost of the existing
system is $161,000 per year. System C will cost $310,000with a $50,000 salvage value after 4 years.
Its operating cost will be $65,000 per year. If you are told to do a replacement analysis using an
interest rate of8% per year, which system would you recommend?
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