Analyze the problem for mfi and make clear recommendations

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Reference no: EM131903185

Problem

Metal Fabrication Inc. (MFI) is investigating replacement of a roller they bought five years ago which is fully depreciated. Another company is willing to buy the roller for $23,000 delivered at their factory. The delivery will cost $3,000. If the roller is not sold the maintenance cost will be $9,500 for the next year, increasing by $100 each year thereafter. Its resale value is estimated to be $17,000 by the end of the year and $14,000, $11,000, and $7,000 each year thereafter. A new roller can be bought for $70,000 with an installation cost of $10,000. It will have no maintenance cost for the first two years, $1,000 in year 3, neareasing by $2,000 each year thereafter. Its resale value at the end of the first year is $73,000, at the end of second year is $70,000, at the end of third year is $66,000 and drops by $4,000 per year thereafter. It can be assumed that the productivity and operational costs of both systems are going to be the same. Tax and depreciation are not going to be considered. Analyze this problem for MFI and make clear recommendations. Use a MARR of 10%. Show all your cash flow diagrams and details of any calculations.

Reference no: EM131903185

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