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Racer Industries is currently purchasing Part No. 76 from an outside supplier for $87 per unit. Because of supplier reliability problems, the company is
Racer Industries is currently purchasing Part No. 76 from an outside supplier for $87 per unit. Because of supplier reliability problems, the company is considering producing the part internally in an idle manufacturing plant. Annual volume over the next 6 years is expected to total 293,000 units at variable manufacturing costs of $82 per unit. Racer must acquire $87,000 of new equipment if it reopens the plant. The equipment has a 6-year service life, a $14,700 salvage value, and will be depreciated by the straight-line method. Repairs and maintenance are expected to average $5,900 per year in years 4-6, and the equipment will be sold at the end of its life. Year FV of $1 at 14% 1 FV of an ordinary annuity at 148 1.000 PV of $1 at PV of an ordinary 2 3 1.482 4 5 6 1.689 1.925 2.195 4.921 6.610 8.536 1.140 1.300 2.140 3.440 14% 0.877 0.769 0.675 annuity at 148 0.877 1.647 2.322 2.914 3.433 3.889 TITIT 0.592 0.519 0.456 Required: Use the net-present-value method (total-cost approach) and a 14% hurdle rate to determine whether Racer should make or buy Part No. 76. Ignore income taxes. (Negative amounts should be indicated by a minus sign. Round your answers to the nearest dollar amount.) Buy: Purchase Make: Variable manufacturing costs New Equipment Repairs and maintenance Equipment sale Total Racer should make or buy
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