Question
Chung Inc. is considering purchasing a new piece of equipment that would minimize the amount of human labor needed to operate. The equipment would cost
Chung Inc. is considering purchasing a new piece of equipment that would minimize the amount of human labor needed to operate. The equipment would cost $500,000 and have a useful life of 5 years and have a salvage/residual value of $35,000 at that time. This piece of equipment would reduce Chung Inc.s labor force by 2 employees who each currently earn $35,000 per year. The company anticipates minimum wage to increase by 10% at the start of the 3rd year. Chung Inc. uses a 10% discount rate in evaluating these types of proposals. Should Chung Inc. purchase this new piece of equipment? Explain all computational steps.
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