evaluation techniques

In 2 x 4 and 2 x 6 lumber production, significant amounts of wood are present in Building 47.200 sideboards produced after the initial cutting of logs. Instead of processing the Conveyor modification 14.500 sideboards into wood chips for the paper mill, an "edger" is used to reclaim additional Electrical (wiring) 16.500 lumber, thus resulting in savings for the company. An edger is capable of reclaiming Sub total $135,400 lumber by any of the following three methods (1) removing rough edges, (2) Engineering 7,000 splitting large sideboards, and (3) salvaging 2 x 4 lumber from low-quality 4 x 4 Construction management 20,000 boards. Union Camp Company's engineers have discovered that a significant Contingency 16.200 reduction in production costs could be achieved simply by replacing the original Tota $178,600 "edger" machine with a newer laser-controlled model. Ugeful life of new edger 10 years Salvage value Old Edger: The old edger was placed in service 12 years ago and is fully Building (tear down) depreciated. Any machine scrap value would offset the removal cost of the Equipment 10% of the equipment. No market exists for this obsolete equipment. The old edger needs two original cost operators. During the cutting operation, the operator makes edger settings based on Annual ORM costs $35,000 his/her own judgment. The operator has no means of determining exactly what Depreciation Methods dimension of lumber could be recovered from a given sideboard and must guess at the Building 19-year proper setting to recover the highest grade of lumber. Furthermore, the old edger is MACRS not capable of salvaging good-quality 2 x 4s from poor-quality 4 x 49. The defender Equipment and 7-year mstallation MACRS can continue in service for another 3 years with proper maintenance. Current market value Twenty-five percent of total mill volume passed through the edger. A 12% yield Current book value improvement is expected to be realized on this production, which will result in an Ammual maintenance $2,500 in year 1, improvement of total mill volume of (0 25)0.12)=3%, or an annual savings of post increasing at a $57,895. rate of 159% each year over the (a) Should the defender be replaced now if the mill's MARR and marginal tax rate previous year's ar 15% and 40%, respectively? coe Ammual operating costs (b) If the defender will eventually be replaced by the current challenger, when is (labor and power $65,000 the optimal time to replace? New Laser-Controlled Edger: The new edger has numerous advantages over its defender. There advantages include laser beams that indicate where cuts should be made to obtain the maximum yield by the edger. The new edger requires a single operator, and labor savings will be reflected in lower operating and maintenance costs of $35,000 a year. Estimated Cost Equipment $35,700 Equipment Installation 21.500