The X Company plans to produce the product by the suitable way of three proposed methods. Method A involves the purchase of a machine for $ 6100. It will have a five- year life, with a zero-salvage value at that time. Using the method, A involves additional costs of $ 0.18 per unit of product produced per year. Method B involves the purchase of a machine for $ 7800. It will also have a five-year life, with a $2000 salvage value at that time. Using Method B involves additional costs of $0.16 per unit of product produced per year. Method C involves the purchase of a machine for $5850. It will have a $ 1100 salvage value when disposed of in five years. Additional costs of $0.25 per unit of product per year arise when Method C is used. An 8% interest rate is used by the X Company in evaluating investment alternatives. For what range of annual production volume values is each method preferred?

The X Company plans to produce the product by the suitable way of three proposed methods. Method A involves the purchase of a machine for $ 6100. It will have a five- year life, with a zero-salvage value at that time. Using the method, A involves additional costs of $ 0.18 per unit of product produced per year. Method B involves the purchase of a machine for $ 7800. It will also have a five-year life, with a $2000 salvage value at that time. Using Method B involves additional costs of $0.16 per unit of product produced per year. Method C involves the purchase of a machine for $5850. It will have a $ 1100 salvage value when disposed of in five years. Additional costs of $0.25 per unit of product per year arise when Method C is used. An 8% interest rate is used by the X Company in evaluating investment alternatives. For what range of annual production volume values is each method preferred?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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