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The management of Dusseldorf Manufacturing Company is currently evaluating a proposal to purchase a new, innovative drill press as a replacement for a less efficient
The management of Dusseldorf Manufacturing Company is currently evaluating a proposal to purchase a new, innovative drill press as a replacement for a less efficient piece of similar equipment, which would
then be sold. The cost of the equipment, including delivery and installation, is $ If the equipment is purchased, Dusseldorf will incur a $ cost in removing the present equipment and revamping
service facilities. The present equipment has a book value of $ and a remaining useful life of years. Because of new technical improvements that have made the present equipment obsolete, it now has
a disposal value of only $ Management has provided the following comparison of manufacturing costs:
Additional information follows:
Management believes that if the current equipment is not replaced now, it will have to wait years before replacement is justifiable.
Both pieces of equipment are expected to have a negligible salvage value at the end of years.
Management expects to sell the entire annual production of units.
Dusseldorf's cost of capital is
Required
Evaluate the desirability of purchasing the new equipment.
Note: Round your answer to the nearest whole dollar.
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