Kendle Knitting Mills Is Looking to Purchase Additional Weaving Looms

question 2

Multiple Choice

Kendle Knitting Mills is looking to purchase additional weaving looms of different sizes. One supplier has offered an appropriate configuration of machines valued at $175,000. Kendle projects incremental income from these looms before depreciation at $40,000 a year over an eight year period. Kendle can purchase similar used machines for $85,000 but the equipment is less efficient and will only last four years. Income from these is projected at $40,000, $37,000, $33,000, and $28,000 respectively. Both used and new machines will have no salvage value at the end of their useful lives. If Kendle is looking for a 14% return, determine if Kendle should buy new or used looms using common-shortest period of time approach. What should Kendle buy?

• A) Neither new looms nor old as the NPV for both is negative.
• B) Used looms as they have a NPV that is $17,164 higher than new.
• C) Used looms as they have a NPV that is $67,494 higher than new.
• D) New looms as they have a NPV that is $90,568 higher than old.
• E) New looms as they have a NPV that is $3,324 higher than old.

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Definitions:

Neural Messages

Electrical and chemical signals transmitted by neurons to communicate information throughout the body and brain.

Auditory Nerve

The cranial nerve that transmits sound information from the cochlea of the inner ear to the brain.

Information-Processing Theory

A cognitive approach that likens the mind to a computer, focusing on how information is taken in, stored, and retrieved.

Memory

The process by which information is encoded, stored, and retrieved, allowing experiences to be remembered over time.