In: Economics
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
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 |