An Piece of Automated Assembly Equipment Has an Initial Cost

question 14

Essay

An piece of automated assembly equipment has an initial cost of $64,000 and generates net annual benefits of $150,000 per year. The equipment is expected to have zero salvage value at the end of its useful life of 5 years. Using straight- line depreciation, an after- tax MARR of 2%, a federal tax rate of 39%, and a state tax rate of 9%, determine if the investment in this equipment is economically justifiable on the basis of the present worth of the EVA estimates.

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Definitions:

Producer Surplus

The difference between the amount producers are willing to accept for a good versus what they actually receive.

Marginal Benefit

Marginal benefit is the additional satisfaction or utility received by consuming one more unit of a good or service.

Marginal Cost

The cost attached to the production of one additional unit of a good or service.

Competitive Market

A competitive market is one where there are many buyers and sellers so that no single buyer or seller can influence the price or terms of products.