Harris Timber Corporation Uses a Machine That Removes the Bark

question 193

Essay

Harris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines:
It is estimated that the new machine will produce annual cost savings of $95,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions
Determine whether the company should purchase the new machine.

---

Definitions:

Independent Variable

A variable in a study or experiment that is manipulated or changed to observe its effect on a dependent variable.

Residual Standard Deviation

A measure of the amount of variation in a set of observed values that is not explained by a statistical model, representing the standard deviation of the differences between predicted and observed values.

Regression Model

A mathematical representation used to estimate the relationship between a dependent variable and one or more independent variables.

Normally Distributed Residuals

Residuals (the differences between observed and predicted values) that are distributed according to a normal distribution, indicating a good fit for a linear model.