Acer is contemplating to replace its old machinery with a new one. The cost of old...

Acer is contemplating to replace its old machinery with a new one. The cost of old machinery is 960,000. The old machinery was bought 6 years ago with a total useful life of 13 years. If sold now, the old machinery can be salvaged at $17,000. The existing machinery has the production capacity of 30,000 units. Acer Inc.'s finished product is called Product X which can be sold at $75, and has per unit variable cost of $42. The annual maintenance cost of the existing machinery is $18,000. If replaced, the new machinery can be bought for $600,000 having useful life of 7 years. This replacement will increase the annual capacity from 30,000 units to 35,000 units and also bring savings of $2 in per unit variable cost. The annual maintenance cost of the new machinery would be $29,000 Assume that the company can selll whatever is produced, and the tax rate applicable to the company is 35%. Provide an analysis showing whether the company should replace its old machinery with the new one or not?

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Expert Solution

Here, Old Machinery's life is 13 Years. Out of which 6 years have been passed. So, we have to do all calculations for remaining 7 years only.

ekkarill92 answered 1 year ago

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