Considering replacing production machine tool

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Reference no: EM131647934

A manufacturer is considering replacing a production machine tool. The new machine would cost $3700, have a life of four years, have no salvage value, and save the firm $500 per year in direct labor costs and $200 per year indirect labor costs. The existing machine tool was purchased four years ago at a cost of $4000. It will last four more year and have no salvage value at the end of that time. It could be sold now for $1000 cash. Assume money is worth 8%, and that the difference in taxes, insurance, and so forth, for the two alternatives is negligible. Determine whether or not the new machine should be purchased.

Reference no: EM131647934

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