"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?"

Expert Solution

Hence preferred option is continuing with the old machine.

ekkarill92 answered 1 year ago

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