ABC CO. is considering replacing a production line with a new, more productive one. You are given the information that follows. The existing production line currently generates $100,000 profit per year and could be sold today for $40,000. The new proposed production line would generate profits of $150,000 per year The new proposed production line requires an initial investment $80,000. The company is seeking your advice regarding whether to replace the production line or keep the existing one. Required: Based on the Marginal analysis concept, what would you recommend? State the reasons why focusing on profit only should not be the optimal goal for companies.
ABC CO. is considering replacing a production line with a new, more productive one. You are given the information that follows. The existing production line currently generates $100,000 profit per year and could be sold today for $40,000. The new proposed production line would generate profits of $150,000 per year The new proposed production line requires an initial investment $80,000. The company is seeking your advice regarding whether to replace the production line or keep the existing one. Required: Based on the Marginal analysis concept, what would you recommend? State the reasons why focusing on profit only should not be the optimal goal for companies.
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 11PROB
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Question 2 :
ABC CO. is considering replacing a production line with a new, more productive one. You are given the information that follows.
- The existing production line currently generates $100,000 profit per year and could be sold today for $40,000.
- The new proposed production line would generate profits of $150,000 per year
- The new proposed production line requires an initial investment $80,000.
- The company is seeking your advice regarding whether to replace the production line or keep the existing one.
Required:
- Based on the Marginal analysis concept, what would you recommend?
- State the reasons why focusing on profit only should not be the optimal goal for companies.
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