For five years Bennie's Brewery has been using a machine that attaches labels to bottles. The machine
Question:
For five years Bennie's Brewery has been using a machine that attaches labels to bottles. The machine was purchased for $4,000 and is being depreciated over 10 years to a $0 salvage value using straight- line depreciation. The machine can be sold now for $2,000. Bennie can buy a new labeling machine for $6,000 that will have a useful life of five years and cut labor costs by $1,200 annually. The old machine will require a major overhaul in the next few months at an estimated cost of $300. If purchased, the new machine will be depreciated over five years to a $500 salvage value using the straight-line method. The company will invest in any project earning more than the 12 percent cost of capital. The tax rate is 40 percent. Should Bennie's Brewery invest in the new machine?
Step by Step Answer:
Operations Management For Competitive Advantage
ISBN: 1572
11th Edition
Authors: Richard B. Chase, F. Robert Jacobs