1) A lumber company that cuts fine woods for cabinetry is evaluating whether it should retain the current bleaching system or replace it with a new one. The relevant costs for each system are known or estimated. Use aninterest rate of 10% per yearto(a)perform the replacement analysis and(b)determine the minimum resale price needed to make the challenger replacement choice now. Is this a reasonable amount to expect for the current system?

Current

New

System

System

First cost 7 years ago, $

-450,000

First cost, $

-700,000

Remaining life, years

5

10

Current market value, $

50,000

AOC, $ per year

-160,000

-150,000

Future salvage, $

0

50,000

2) The fixed costs at Harley Motors are $1 million annually. The main product has revenue of $8.50 per unit and $4.25 variable cost. Determine the following:

(a)Breakeven quantity per year.

(b)Annual profitif 200,000 unitsare sold andif 350,000 unitsare sold