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Anpendix Four (Equipment Replacement Decision) Objective: The proposed manufacturing plant has a food packaging equipment. The analysis would provide Adam with decision support as to

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Anpendix Four (Equipment Replacement Decision) Objective: The proposed manufacturing plant has a food packaging equipment. The analysis would provide Adam with decision support as to use that equipment or procure a new one. Scenario: The current equipment was purchased eight years ago for $550,000 and has seven useful years remaining. The new machine will cost $410,000 and will have the same useful life remaining as the old machine and will have zero disposal value. Currently the annual operating cost is $200,000 and will reduce by 50% if the new equipment is purchased. If the new equipment is procured, it will need to be shut down once a year for maintenance purposes. Opportunity cost of the shut down period is as follows: - $7,100 in each of the years 1-3 - $9,300 in each of the years 4 and 5 - $12,000 in each of the years 6 and 7 The old equipment will have limited use and can only fetch $80,000 when disposed off at this time. The group would calculate the net advantage/ disadvantage of buying the new equipment by appling a Methodology: discount rate of 9% wherever applicable. Anpendix Four (Equipment Replacement Decision) Objective: The proposed manufacturing plant has a food packaging equipment. The analysis would provide Adam with decision support as to use that equipment or procure a new one. Scenario: The current equipment was purchased eight years ago for $550,000 and has seven useful years remaining. The new machine will cost $410,000 and will have the same useful life remaining as the old machine and will have zero disposal value. Currently the annual operating cost is $200,000 and will reduce by 50% if the new equipment is purchased. If the new equipment is procured, it will need to be shut down once a year for maintenance purposes. Opportunity cost of the shut down period is as follows: - $7,100 in each of the years 1-3 - $9,300 in each of the years 4 and 5 - $12,000 in each of the years 6 and 7 The old equipment will have limited use and can only fetch $80,000 when disposed off at this time. The group would calculate the net advantage/ disadvantage of buying the new equipment by appling a Methodology: discount rate of 9% wherever applicable

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