Engineering Economic Analysis, Third Edition: Chapter 13

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A garment manufacturing company is currently manufacturing one of its products on a double-needle chain-stitch machine. The unit cost of the product is $10 and 2,500 units were produced and sold for $18 each during the past year. The company expects that both the future demand of the product and the unit price will remain steady at 2,500 units per year and $18 per unit. The old machine has a remaining useful life of 3 years. The old machine could be used on the open market now for $5,500. In 3 years, the old machine is expected to have a salvage value of $1,300. The new machine would cost $30,000 and the unit manufacturing cost on the new machine is projected to be $9. The new machine has an expected economic life of 4 years and an expected salvage value of $8,000. The appropriate MARR is 13%. The firm does not expect a significant improvement in technology and it needs the service of either machine for an indefinite period.

Question 1:

a) $15,975.41
b) $12445.78
c) $20,655.85
d) $12335.22

Question 2:

a) $12,445.78
b) $15,975.41
c) $12,335.22
d) $20,655.85

Question 3:

a) Yes
b) No
c) Indifferent
d) More information required