Byer, a Plastics Processor, Is Considering the Purchase of a High-Speed

question 90

Multiple Choice

Byer, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $47,000 and would have a residual value of $5000 at the end of its 6-year life. The annual operating expenses of the new extruder would be $4000. The other option that Byer has is to rebuild its existing extruder. The rebuilding would require an investment of $40,000 and would extend the life of the existing extruder by 6 years. The existing extruder has annual operating costs of $11,000 per year and does not have a residual value. Byer's discount rate is 12%. Using net present value analysis, which option is the better option and by how much? Present Value of $1
Present Value of Annuity of $1

• A)Better by $21,777 to rebuild existing extruder
• B)Better by $21,777 to purchase new extruder
• C)Better by $24,312 to rebuild existing extruder
• D)Better by $24,312 to purchase new extruder

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Definitions:

Slack Adjuster

A device in a braking system used for adjusting the brakes to compensate for wear.

Service Diaphragm

A flexible membrane in a device or pump that moves in response to pressure changes, used in various applications including brakes.

Treadle Valve

A treadle valve regulates air pressure in a pneumatic system, often found in heavy vehicles like trucks and buses, controlling braking force by the amount of pressure applied by the driver's foot.

Metered Out

In fluid dynamics and pneumatics, refers to the controlled release or distribution of a fluid at a measured rate from a system.