Johnson Corporation Is Interested in Purchasing a State-Of-The-Art Stamping Machine

question 164

Essay

Johnson Corporation is interested in purchasing a state-of-the-art stamping machine for its manufacturing plant. The new machine has been designed to basically eliminate all errors and defects in the production process. The new machine will cost $180,000, and have a salvage value of $80,000 at the end of its eight-year useful life. Bailey has determined that cash inflows for years 1 through 8 will be as follows: $33,000; $58,000; $28,000; $39,000; $27,000; $22,000, $27,000 and $29,000, respectively. Maintenance will be required in years 3 and 6 at $14,000 and $9,000 respectively. Bailey uses a discount rate of 12 percent and wants projects to have a payback period of no longer than six years.
Present value tables or a financial calculator are required.

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Definitions:

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Game Theory

The study of behavior in situations of interdependence. Used to explain the behavior of an oligopoly.

Dominant Strategies

In game theory, strategies that are best for a player, regardless of the strategies chosen by other players.

Payoff Matrix

In game theory, a diagram that shows how the payoffs to each of the participants in a two-player game depend on the actions of both; a tool in analyzing interdependence.