Exercise 2-5 Profit comparison method

- Comparison ofalternatives Harvesting asparagus means working by hand. However, this may soon change. Recently, a harvesting machine has been developed for the vegetable growing on dams and has been presented at an agricultural fair. A manufacturer is willing to mass-produce it. The machine strains the entire asparagus dam, sorts out the asparagus and rebuilds the dam. Purchasing such a machine makes the employment of seasonal workers obsolete. Each year asparagus with a value of€ 100,000 is produced.

The asparagus farmer is sceptical: "Asparagus stalks do not all grow at an equal rate.

Whereas traditional harvesting cuts only asparagus longer than 8 inches, the machine also takes out the shorter plants."

The main financial details are shown in the table:

Traditional harvesting Harvesting machine Initial outlay in € 144,000 Economic life of the machine in years Percentage of utilisable asperagus 100 80 Annual maintenance of the harvesting machine 3,680 Personell costs seasonal workers per year 65,000 A alternative investment on the farm for a milking machine would generate average annual profits of € 14,000. The farmer uses the profit comparison method to decide between those two investment opportunities. He can leave money on deposit at 6 %.