Carla's Citrus Packs and Ships High-Quality Oranges,grapefruit,and Other Fruit to Retailers

question 104

Essay

Carla's Citrus packs and ships high-quality oranges,grapefruit,and other fruit to retailers in the U.S.Carla has been experiencing an increase in demand for its products and is considering the purchase of a new packaging machine to replace the machine currently in use.The new machine will cost $202,500,and installation will require an additional $4,050.The machine has a useful life of 10 years and is expected to have a salvage value of $5,400 at the end of its useful life.The variable cost to operate the new machine is $13.50 per carton compared to the current machine's variable cost of $13.65 per carton.Carla expects to pack 250,000 cartons each year.If the new machine is purchased,Carla will avoid a required $13,500 overhaul of the current machine in three years.The current machine has a market value of $16,200.
Required
a.Calculate the net present value of the new packaging machine.Assume that Carla uses a 10% discount rate.
b.Do you recommend that Carla purchase the new machine? Why or why not?
c.Assume that Carla has adopted a new 15% discount rate.Do you recommend that Carla purchase the new machine? Why or why not?

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Definitions:

Macroeconomic Analysis

The examination and interpretation of economic trends and policies at the scale of an entire economy, focusing on phenomena like inflation, unemployment, and Gross Domestic Product (GDP).

Global Businesses

Companies that operate and provide goods or services in multiple countries across the world.

Marginal Cost

The price of making an additional unit of a product.