Question
he Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $10.4 million (the existing equipment
he Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $10.4 million (the existing equipment has zero salvage value). The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $9.40 a welt to $5.40. However, as the following table shows, there is some uncertainty about both the future sales and the performance of the new machinery: Pessimistic Expected Optimistic Sales (million welts) 1.8 1.9 2.1 Manufacturing cost ($ per welt) 7.40 5.40 4.40 Life of new machinery (years) 4 7 10 Conduct a sensitivity analysis of the replacement decision assuming a discount rate of 8%. Rustic does not pay taxes. Calculate the NPV. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Enter your answers in dollars not in millions. Negative amounts should be indicated by a minus sign.)
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