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Could you please work this question? 169 pen ts Check my work EnterTech has noticed a significant decrease in the profitablllty Of its 'Ine of
Could you please work this question?
169 pen ts Check my work EnterTech has noticed a significant decrease in the profitablllty Of its 'Ine of its wireless headphones. The production manager believes that the source of the trouble is old, Inefficient equipment used to manufacture the product. The Issue raised, therefore. is Whether EnterTech should (I) buy new equipment at a cost of $120,000 or (2) continue using Its present equipment. It Is unlikely that demand for this pattlcular model Of Wireless headphones will extend beyond a five- year time horizon. EnterTech estimates that both the new equipment and the present equipment will hove a remaining useful Ilfe Of five years and no salvage value. The new equipment is expected to produce annual cash savings In manufacturing Costs Of $34,000. before taking Into consideration depreciation and taxes, However. management does not belleve that the use Of new equipment will have any effect on sales volume. Thus. Its decision rests entirely on the magnitude of the potent'al cost savings, The Old equipment has o book value of $'OO.OOO Howeven it can be sold for only $20,000 if it is 'Oplaced, EnterTech has an average tax rote of 40 percent ond uses straight-Iino depreciation for tax purposes. The company requires o minimum return Of 12 percent on investments in plant assets. a. Compute the net present value o' tho new machine using the tables In and2.6;4 (Round your "PV factors' to 3 decimal places.)
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