Gwynn Company Is Considering the Replacement of a Machine That

question 108

Short Answer

Gwynn Company is considering the replacement of a machine that is presently used to produce its single product.The following data are available: $$\begin{array} { l r r } & \text { Old Machine } & \begin{array} { r } \text { Replacement } \\\text { Machine }\end{array} \\\text { Original cost } & \$ 210,000 & \$ 40,000 \\\text { Useful life in years } & 12 & 7 \\\text { Current age in years } & 5 & 0 \\\text { Book value } & \$ 65,000 & - \\\text { Disposal value now } & \$ 30,000 & - \\\text { Disposal value in 7 years } & 0 & 0 \\\text { Annual cash operating costs } & \$ 10,000 & \$ 9,000\end{array}$$ Required:
Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together.Indicate the best alternative for Gwynn Company.

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Definitions:

Moisture Farm

A fictional type of farm found in science fiction, particularly in the Star Wars universe, designed for the collection and harvesting of water from the atmosphere.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity can dictate prices or terms of sale.

Republic Credits

In the Star Wars universe, Republic Credits are a form of currency that was used by the Galactic Republic for transactions and trades, not applicable in real-world economics.

Marginal Product

The additional output resulting from using one more unit of a particular input, holding other inputs constant.