Discuss about the semiautomatic production equipment

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Reference no: EM131804820

Problem: XYZ manufacturing company has some existing semiautomatic production equipment that is considering replacing. This old equipment yearly maintenance cost now is $900 and will be increasing by $100 per year. This old equipment has a present MV of $ 6,000 with 5 more years left of its useful life and at EOY 5 it will have a negligible market value. XYZ. Company can replace the old equipment with a new one, the purchasing price of the new equipment is $11,000 and its maintenance cost is $150 for the first year and the maintenance cost for this new equipment will increase at a 2% per year hence after. The new equipment has a useful life of 5 years and at EOY 5 it will have a MV of $3,000. XYZ Company has a MARR before tax of 15% per year. Perform a before-tax analysis to determine if Company XYZ should keep the old equipment or should it replace it by purchasing the new equipment.

Reference no: EM131804820

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