King Karaoke makes karaoke machines for personal and commercial use. The production manager wants to replace an old assembly machine with a newer model. He believes the new model will allow them to reduce fixed and variable costs by 8%. The new machine has a value of $130,000 and the old machine is valued at $35,000. Current sales are $600,000 with a contribution margin of 59% and fixed costs of $98,000. Average operating assets before purchase of the new machine are $4,000,000. Should the company upgrade their assembly machine? Why or why not?

• A :

  No, because average operating assets are increased.
• B :

  Yes, because the ROI increases by 0.52%.
• C :

  No, because the ROI decreases by 0.15%
• D :

  Yes, because fixed and variable costs are decreased.