How many new machines should easy sight buy

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Reference no: EM131477061

Question: The Easy Sight company manufactures sunglasses. The company has two machines, each of which produces 1,000 sunglasses per month. The book value of each of the old machines is $10,000 and their expected life span is 5 years. The machines are being depreciated on a straight-line basis to zero salvage value. The company assumes it will be able to sell a machine today (January 2004) for the price of $6,000. The price of a new machine is $20,000 and its expected life span is 5 years.

The new machine will save the company $0.85 for every pair of sunglasses produced. Demand for sunglasses is seasonal. During the five months of the summer (MaySeptember) demand is 2,000 sunglasses per month while during the winter months it falls down to 1,000 per month. Assume that due to insurance and storage costs it is uneconomical to store sunglasses at the factory. How many new machines should "Easy Sight" buy if the discount rate is 10% and the corporate tax rate is 40%?

Reference no: EM131477061

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