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In: Economics

A tool and die company is considering the purchase of a drill press with fuzzy-logic software...

A tool and die company is considering the purchase of a drill press with fuzzy-logic software to improve accuracy and reduce tool wear. The company has the opportunity to buy a slightly used machine for $15,000 or new one for $21,000. Because the new machine is a more sophisticated model, its operating cost is expected to be $7000 per year, while the used machine is expected to require $8200 per year. Each machine is expected to have 25 years life with 5% salvage value. Tabulate the incremental cash flow

I've already looked at https://www.chegg.com/homework-help/questions-and-answers/tool-die-company-considering-purchase-drill-press-fuzzy-logic-software-improve-accuracy-re-q28194174 and https://www.chegg.com/homework-help/questions-and-answers/tool-die-company-considering-purchase-drill-press-fuzzy-logic-software-improve-accuracy-re-q28235286 answers just need additional help

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Expert Solution

Salvage value of used machine = 5% * 15000 = 750

Salvage value of new machine = 5% * 21000 = 1050

Basically, we need to find Net cash flow each year for both machines and then subtract the value of used machine from the new machine

incremental cash flow = Net cash flow of New machine - Net cash flow of old machine

Used machine (U) New Machine (N) N-U
Year Initial Cost O&M Cost Salvage value Net cash Flow Initial Cost O&M Cost Salvage value Net cash Flow Incremental cash Flow
0 -15000 -15000 -21000 -21000 -6000
1 -8200 -8200 -7000 -7000 1200
2 -8200 -8200 -7000 -7000 1200
3 -8200 -8200 -7000 -7000 1200
4 -8200 -8200 -7000 -7000 1200
5 -8200 -8200 -7000 -7000 1200
6 -8200 -8200 -7000 -7000 1200
7 -8200 -8200 -7000 -7000 1200
8 -8200 -8200 -7000 -7000 1200
9 -8200 -8200 -7000 -7000 1200
10 -8200 -8200 -7000 -7000 1200
11 -8200 -8200 -7000 -7000 1200
12 -8200 -8200 -7000 -7000 1200
13 -8200 -8200 -7000 -7000 1200
14 -8200 -8200 -7000 -7000 1200
15 -8200 -8200 -7000 -7000 1200
16 -8200 -8200 -7000 -7000 1200
17 -8200 -8200 -7000 -7000 1200
18 -8200 -8200 -7000 -7000 1200
19 -8200 -8200 -7000 -7000 1200
20 -8200 -8200 -7000 -7000 1200
21 -8200 -8200 -7000 -7000 1200
22 -8200 -8200 -7000 -7000 1200
23 -8200 -8200 -7000 -7000 1200
24 -8200 -8200 -7000 -7000 1200
25 -8200 750 -7450 -7000 1050 -5950 1500

Rahul Sunny answered 1 year ago
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