Question
Teagyn corp. produces PITAs and has a choice of upgrading or replacing a piece of equipment. The upgrade would cost $25M and have an operating
Teagyn corp. produces PITAs and has a choice of upgrading or replacing a piece of equipment. The upgrade would cost $25M and have an operating cost per unit of $62,000. Replacing the equipment would cost $39M and would reduce operating costs per unit from the upgrade estimate by 10%. Replacing would also allow the current machine to be sold for $3M now. Regardless of the choice, Teagyn forecasts sales of 460 units at $80,000 per unit and expects unit sales to grow at 10% per year over the next four years (five years in total, selling price and costs would remain the same). Use a WACC of 12% and to compare these choices.
What would the cost reduction percent decrease to change the decision on an NPV basis? Please consider the changes in steps of whole percents (i.e. 11% to 12%). Please enter your response with no units or commas and 0 decimal places (whole numbers): "21.1%" would be "21" (note: NO units and use 5/4 rounding).
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