Question

In: Economics

1. You supervise an aging production line that constantly needs maintenance and new parts. Last month...

1. You supervise an aging production line that constantly needs maintenance and new parts. Last month you spent $25,000 replacing a failed controller. Should the following plan be accepted if the interest rate is 15%? The net installed cost of the new line to replace the old line is $600,000 with a useful life of six years. In the first year its operating cost will be $100,000, and it will generate annual revenues of $300,000. Each year the operating cost will increase by $5,000 and the revenues will fall by $15,000. After six years the equipment will have a value of $100,000 in the next re-building of the line.

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Expert Solution

The Plan of new installation can be accepted because it is having a posetive Net present worth.

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Rahul Sunny answered 7 months ago
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