Question
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
Solutions
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 | ||
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