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Reliable Laundromat must either make extensive repairs to its current dry-cleaning system or replace it with a new system. The following information compares the alternatives:
Reliable Laundromat must either make extensive repairs to its current dry-cleaning system or | ||||||
replace it with a new system. The following information compares the alternatives: | ||||||
Current | New | |||||
System | System | |||||
Purchase cost | $ 40,000 | $ 60,000 | ||||
Repair cost | $ 17,000 | |||||
Annual cash operating cost | $ 35,000 | $ 20,000 | ||||
Can be sold for today | $ 8,000 | $ 40,000 | ||||
Can be sold for in 1 year | $ 2,500 | $ 10,000 | ||||
If Reliable keeps the current system, the repairs have to be make immediately. The repairs | ||||||
Will cause the company to be shut down for 4 days. If the new system is purchased, Reliable | ||||||
will be shut down for 2 days for the changeover. Average daily profit for Reliable is $1,200. | ||||||
The owner of Reliable plans to sell the business at the end of one year for $84,000. | ||||||
If Reliable replaces the system, it will be | $_____________________ | better or worse off |
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