The Greenleaf Company is considering purchasing a new set of air-electric quill units to replacean obsolete one. The machine currently being usedfor the operation has a market value of zero. However, it is in good working order, and it will last for atleast an additional five years. The new quill units willperform the operation with so much more efficiencythat the firm’s engineers estimate that labor, material,and other direct costs will be reduced $3,000 a year ifthe units are installed. The new set of quill units costs$10,000 delivered and installed, and its economic lifeis estimated to be five years with zero salvage value.The firm’s MARR is 13%.(a) What investment is required to keep the oldmachine?(b) Compute the cash flow to use in the analysis foreach option.
The Greenleaf Company is considering purchasing a new set of air-electric quill units to replace
an obsolete one. The machine currently being used
for the operation has a market value of zero. However, it is in good working order, and it will last for at
least an additional five years. The new quill units will
perform the operation with so much more efficiency
that the firm’s engineers estimate that labor, material,
and other direct costs will be reduced $3,000 a year if
the units are installed. The new set of quill units costs
$10,000 delivered and installed, and its economic life
is estimated to be five years with zero salvage value.
The firm’s MARR is 13%.
(a) What investment is required to keep the old
machine?
(b) Compute the cash flow to use in the analysis for
each option.
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