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Q3. After deciding to have three machines to meet the forecast demand for the coming 8 years, You are considering the following information to
Q3. After deciding to have three machines to meet the forecast demand for the coming 8 years, You are considering the following information to decide on the best machines to buy. Alternative Economic life Investment/machine Italian 8 $220000 German 8 $250000 Japanese 8 $230000 Salvage value/machine Capacity $12000 50 unit/hour $25000 50 unit/hour $20000 50 unit/hour You are expecting to sell 2500 units a day (250 days a year) at a selling price of $3 with annual increase of 1%. Labor per hour per machine is $10 and expected to remain the same over the whole period. Annual material cost (including waste) is expected to be $250000 for the German machine, $220000 for the Italian and $200000 for the Japanese with annual increase of 4% Maintenance and other operating expenses (excluding depreciation) are expected to total $180000 per year with annual increase of 3% for the German machine, 2% for the Japanese Machine and 4% for the Italian Machine. Which machine would you buy if the cost of capital (discount rate is 12%)?
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