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19. Metallic Peripherals, Inc. has received a production contract for a new product. The contract lasts for 5 years. To do the necessary machining operations,
19. Metallic Peripherals, Inc. has received a production contract for a new product. The contract lasts for 5 years. To do the necessary machining operations, the firm can use one of its own lathes, which was purchased 3 years ago at a cost of $16,000. Today the late can be sold for $8.000. In 5 years the she will have a zero salvage value. Anul operating and maintenance costs for the lathe are 54,000 year. If the form uses its own lathe it must also purchase an additional lathe at a cost of $12.000, its value in 5 years will be $3,000. The new lathe will have annual operating and maintenance costs of $3,500 year. As an alternative, the presently owned lathe can be traded in for $10,000 and a new lathe of larger capacity purchased for a cost of $24.000: its value in 5 years is estimated to be $8,000, and its annual operating and maintenance costs will be $6,000/year. An additional alterative is to sell the presently owned lathe and subcontract the work to another fimm Company has agreed to do the work for the 5-year period at an a l cost of $12.000 end-of-year Using a 15% interest rate, determine the least-cost alternative for performing the required production operations 2. Use the cash flow approach b. Use the opportunity cost approach
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