Marginal costbenefit analysis and the goal of the firmMonsanto Corporation is considering the replacement of some of its older and outdated carpet-manufacturing equipment. Its objective is to improve the efficiency of operations in terms of both speed and reduction in the number of defects. The companys finance department has compiled pertinent data to conduct a marginal costbenefit analysis for the proposed equipment replacement.

The cash outlay for new equipment would be $600,000. The net salvage value of the old equipment is $250,000. The total benefits over the life of the new equipment (measured in todays dollars) would be $900,000. The sum of benefits from the remaining life of the old equipment (measured in todays dollars) would be $300,000.

a) What are the marginal benefits of the proposed equipment replacement?

b) What are the marginal costs of the proposed equipment replacement?

c) What is the net benefit of the proposed equipment replacement?

d) What would you recommend the firm do? Why?