You have been asked to evaluate a proposal for new, more efficient manufacturing equipment. The existing equipment will produce benefits over the next five years of $780,000 in todays dollars. The proposed new equipment will produce benefits of $970,000 in todays dollars over the same period. The installed cost of the new equipment is $300,000; the old equipment can be sold for $130,000.

Apply marginal cost-benefit analysis to determine:

a. The marginal benefits of the new equipment

b. The marginal costs of the new equipment

c. The net benefit of the new equipment

d. Based on your calculations, what do you recommend? Why?

e. What factors other than the costs and benefits should be considered before the final decision is made?

Please show formulas. Put in Excel