Im not sure we should lay out $300,000 for that automated welding machine, said Jim Alder, president of the Superior Equipment Company. Thats a lot of money, and it would cost us $84,000 for software and installation, and another $48,000 per year just to maintain the thing. In addition, the manufacturer admits it would cost $47,000 more at the end of three years to replace worn-out parts.

I admit its a lot of money, said Franci Rogers, the controller. But you know the turnover problem weve had with the welding crew. This machine would replace six welders at a cost savings of $114,000 per year. And we would save another $7,500 per year in reduced material waste. When you figure that the automated welder would last for six years, Im sure the return would be greater than our 17% required rate of return.

Im still not convinced, countered Mr. Alder. We can only get $17,000 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $30,000 for parts. But have your people work up the figures and well talk about them at the executive committee meeting tomorrow.

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