Question
A company is considering the purchase of two different machines. Model X47 costs $464,000 and Model Y52 costs $405,000. The purchase would be made to
A company is considering the purchase of two different machines. Model X47 costs $464,000 and Model Y52 costs $405,000. The purchase would be made to replace a machine that was purchased 10 years ago for $439,000. The old machine was used to make product 228K until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the Model Y52 machine. It has less capacity than Model X47, but its capacity is sufficient to continue making product 228K. Management also considered, but rejected, the alternative of simply dropping product 228K. If that were done, instead of investing $405,000 in the new machine, the money could be invested in a project that would return a total of $456,000.
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