Bailey, Inc., is considering buying a new gang punch that would allow circuit boards to be produced more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $2,000 using the gang punch, but annual raw material costs would decrease $12,000. MARR is 5%/year. assuming that floor support and vibration dampening must be added for the gang punch. These one-time first costs are estimated to be $35,000. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should Bailey buy the gang punch?
Bailey, Inc., is considering buying a new gang punch that would allow circuit boards to be produced more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $2,000 using the gang punch, but annual raw material costs would decrease $12,000. MARR is 5%/year. assuming that floor support and vibration dampening must be added for the gang punch. These one-time first costs are estimated to be $35,000. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should Bailey buy the gang punch?
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