A company that sells has proposed to a small public utility company that it purchase a small electronicscomputer for $1,000,000 to replace ten calculating machines and their operators. An annual servicemaintenance contract for the computer will be provided at a cost of $100, 000 per year. One operatorwill be required at a salary of $110, 000 per year and one programmer at a salary of $160, 000. Theestimated economical life of the computer is 10 years. The calculating machines costs $8,000 each whennew, 5 years ago, and presently can be sold for $2,000 each. They have an estimated life of 8 years andan expected ultimate trade in value of $1, 000 each. Each calculating machine operator receives $85,000 per year. Fringe Benefits for all labour cost 8% of annual salary. Annual maintenance cost on thecalculating machine has been $500 each. Taxes and insurance on all equipment is 2% of the first cost peryear.If capital costs the company about 25%, would you recommend the computer installation?

pany that sells has proposed to a small public utility company that it purchase a small e uter for $1,000,000 to replace ten calculating machines and their operators. An annual enance contract for the computer will be provided at a cost of $100, 000 per year. One required at a salary of $110, 000 per year and one programmer at a salary of $160, 00 ated economical life of the computer is 10 years. The calculating machines costs $8,000 years ago, and presently can be sold for $2,000 each. They have an estimated life of 8 mected ultimate trade in value of $1, 000 each. Each calculating machine operator recei er year. Fringe Benefits for allI labour cost 8% of annual salary. Annual maintenance cost ating machine has been $500 each. Taxes and insurance on all equipment is 2% of the f tal costs the company about 25%, would you recommend the computer installation?

pany that sells has proposed to a small public utility company that it purchase a small e uter for $1,000,000 to replace ten calculating machines and their operators. An annual enance contract for the computer will be provided at a cost of $100, 000 per year. One required at a salary of $110, 000 per year and one programmer at a salary of $160, 00 ated economical life of the computer is 10 years. The calculating machines costs $8,000 years ago, and presently can be sold for $2,000 each. They have an estimated life of 8 mected ultimate trade in value of $1, 000 each. Each calculating machine operator recei er year. Fringe Benefits for allI labour cost 8% of annual salary. Annual maintenance cost ating machine has been $500 each. Taxes and insurance on all equipment is 2% of the f tal costs the company about 25%, would you recommend the computer installation?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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