>> Business Economics
Canadian Widgets makes rocker arms for car engines. The manufacturing process consists of punching blanks from raw stock, forming the rocker arm in a 5-stage progressive die, and finishing in a sequence of operations using hand tools. A recently developed 10-stage die can eliminate many of the finishing operations for high-volume production. The existing 5-stage die could be used for a different product, and in this case would have a salvage value of $20,000. Maintenance costs of the 5-stage die will total $3500 this year and are expected to increase by $3, 500 per year. The 10-stage die will cost $89,000 and will incur maintenance costs of $4,000 this year, increasing by $2, 700 per year thereafter. Both dies depreciate at a declining-balance rate of 20 percent per year (R = 0.2). The net yearly benefit of the automation of the finishing operations is expected to be $16,000 per year. The MARR is 10 percent. Find Economic Service Life (ESL) for both Challenger and Defender. Should the 5-stage die be replaced?