"The Northwest Manufacturing Company is currently manufacturing one of its products on a hydraulic stamping-press machine....

"The Northwest Manufacturing Company is currently manufacturing one of its products on a hydraulic stamping-press machine. The unit cost of the product is $12, and 5,000 units were produced and sold for $18 each during the past year. It is expected that both the future demand of the product and the unit price will remain steady at 5,000 units per year and $18 per unit. The old machine has a remaining useful life of 3 years. The old machine could be sold on the open market now for $2,900. Three years from now, the old machine is expected to have a salvage value of $1,500. The new machine would cost $38,300, and the unit manufacturing cost on the new machine is projected to be $11. The new machine has an expected economic service life of 5 years and an expected salvage value of $5,600. The old stamping machine has been fully depreciated. For tax purposes, the entire cost of $38,300 (the new stamping machine) can be depreciated according to a five-year MACRS property class. The firm`s marginal tax rate is 39%, and the after-tax MARR is 12%. The firm does not expect a significant improvement in technology, and it needs the service of either machine for an idefinite period. What is the ANNUAL EQUIVALENT WORTH of the preferred alternative?"

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Expert Solution

Hence preferred option is continuing with the old machine.

ekkarill92 answered 9 months ago

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