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A company is to make a decision on whether or not to purchase a machine to package its product and has asked you to review the information and provide them with answers to some questions. The machine will cost $200,000. It is desired to pay it off completely after 4 year (4 annual end of year payments). The Supplier has offered to finance the machine at 4.35%. The machine has a life span of 6 years and will have negligible salvage value. Maintenance costs are as follows: Years 1 & 2 $7,500 per year. Years 3 & 4 $10,000 per year. Years 5 & 6 $15,000 per year. Operational costs will start at $18,000 per year and increase by 2% per year (compounded). Savings from the packaging machine are estimated to be $0.40 per package with a yearly volume estimated between a high of 200,000 and a low of 150,000. Do a year-by-year analysis and answer the following questions. The Company had many other projects planned that will give a MARR of 10%.
a) Will the machine cost the company money or make the company money in the first two years assuming the high estimate of production? How much?
b) At the end of four years will the machine have made or lsot the company money? how much? (Calculate for both best and worst case scenarios).
c) What is the profit or loss for the mahcine over its lifetime assuming a best-case scenario? Assuming a worst-case scenario?
d) What is the minimum production level needed to make the purchase viable (breakeven)? To make it past the MARR?
e) If the Saving on the machine drops to $0.35 per package what happens to our numbers?
f) Based on the information available would you recommend pruchase of this machine? Explain your reasoning.
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