A firm has to decide whether to (1). stay with current machine as it is (2)....

A firm has to decide whether to (1). stay with current machine as it is (2). upgrade it with an enhancement or (3). buy a new machine. Cost of upgrade is $1000, and the cost of a new machine is $8000. Revenues are estimated as follows, based on the performance of the economy next year:

	stagnant economy	growth economy
no change	8000	8000
upgrade	8500	10000
new machine	8500	18000

It is estimated that the probability of a stagnant economy next year is 0.51 (so probability of a growth economy is 1 - 0.51).

If a new machine is purchased, and if there is a growth economy next year, what is the estimated payoff? (= revenue - cost of new machine)

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

1. On what basis does a firm decide whether or not to shut down? 2. On...

1. On what basis does a firm decide whether or not to shut down? 2. On what basis does it decide whether or not to go out of business?

We are trying to decide whether to replace the original machine with a new machine. Original...

We are trying to decide whether to replace the original machine with a new machine. Original Machine: Initial cost = 1,000,000; Annual depreciation = 180,000; Purchased 2 years ago; Book Value = 640,000; Salvage today = 700,000; Salvage in 3 years = 150,000 New Machine: Initial cost = 600,000; 3-year life, straight-line depreciation; Salvage in 3 years = 100,000; Cost savings = 50,000/year Required return = 10% and Tax rate = 40% a. Should we replace the original machine with...

DGO Corporation has to decide whether to undertake project 1 or project 2. The projects have...

DGO Corporation has to decide whether to undertake project 1 or project 2. The projects have the following initial investments and future net revenues: . Project 1 Project 2 Initial investment $34,000 $40,000 Net revenue in 2021 $25,000 $35,000 Net revenue in 2022 $30,000 $45,000 Using IP method and a discount rate of 12%, which project would you recommend? Why or why not. This in reference to Profitability Index

Problems Allred Inc. is trying to decide whether to purchase Machine A or Machine B. Below...

Problems Allred Inc. is trying to decide whether to purchase Machine A or Machine B. Below are the associated costs. Which are relevant? Machine A Machine B Relevant or Not Relevant? Cost of Machine $46,000 $50,000 Setup Costs $5,000 $5,000 Costs incurred for research of the machine $400 $600 Annual operating costs for the machine $6,000 $5,000 Outsourcing Decision Animals United currently outsources pet beds for their product line.The beds are purchased for $30 each.The company is considering making the...

Problem XI: Two athletes simultaneously decide whether to use performance enhancing drugs or stay clean. If...

Problem XI: Two athletes simultaneously decide whether to use performance enhancing drugs or stay clean. If they both stay clean, they each earn 50. If they both use, they each earn 45 (the competitive balance is maintained, but there are some health costs associated with using these drugs). If one uses while the other one stays clean, the one who uses earns 95, while the clean one earns zero. Assume these athletes are engaged in repeated interactions and they play...

Stay at Home Inc. purchased a machine on January 1st, 2018 for $88,000. The machine has...

Stay at Home Inc. purchased a machine on January 1st, 2018 for $88,000. The machine has no residual value and a 12 year useful life. At the end of the first year, using straight line depreciation, what would depreciation expense be? At the end of the second year, what would depreciation expense be? At the start of the third year, the company revaluates its estimates and realizes the machine should have a $1,000 residual value and only has 8 years...

For each of these relations on the set {1, 2, 3, 4}, decide whether it is...

For each of these relations on the set {1, 2, 3, 4}, decide whether it is reflexive, whether it is symmetric, whether it is antisymmetric, and whether it is transitive. {(2, 4), (4, 2)} {(1, 2), (2, 3), (3, 4)} {(1, 1), (2, 2), (3, 3), (4, 4)} {(1, 3), (1, 4), (2, 3), (2, 4), (3, 1), (3, 4)} For a) and b) please use the graph representation to determine their properties For c) and d) please use matrix...

Suppose you need to decide whether to keep a machine or replace it with a new...

Suppose you need to decide whether to keep a machine or replace it with a new one: Old machine: The old machine can operate for 5 years with operating cost of $120,000 per year. New machine: Replacing the old machine with a new one requires a capital cost of $250,000 in year zero (assume that there is zero salvage value for old machine). The capital cost is depreciable from year 0 to year 5 (over six years) based on MACRS...

1. A consulting firm must decide now whether to hire a young engineer. The main purpose...

1. A consulting firm must decide now whether to hire a young engineer. The main purpose of this engineer would be to work on a contract that the firm hopes to win. This new contract will begin in 2 months and last for 4 months. If the firm hires the engineer and wins the contract, the firm will make a profit of $6000 on the new contract (this figure allows for the cost of the new engineer during the 4...

A machine shop owner is attempting to decide whether to purchase a new drill press, a...

A machine shop owner is attempting to decide whether to purchase a new drill press, a lathe, or a grinder. The profit or loss from each purchase are shown in the following table where one of two states of nature could occur (the company succeeds in getting a military contract, or it does not get a contract). Contract status Purchase Get Contract No contract Drill press 40000 -8000 Lathe 25000 4000 Grinder 12000 10,000 a-for each purchase...

Subjects