Answered: whether to replace the production line…

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 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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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: a) Based on the Marginal analysis concept, what would you recommend? b) State the reasons why focusing on profit only should not be the optimal goal for companies.

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