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

question 1

Multiple Choice

Stensels, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $50,000 and would have a residual value of $5,000 at the end of its 8 year life. The annual operating expenses of the new extruder would be $8,000. The other option that Stensels has is to rebuild its existing extruder. The rebuilding would require an investment of $30,000 and would extend the life of the existing extruder by 8 years. The existing extruder has annual operating costs of $11,000 per year and does not have a residual value. Stensels' discount rate is 14%. Using net present value analysis, which option is the better option and by how much?

• A) Better by $4,330 to rebuild existing extruder
• B) Better by $4,330 to purchase new extruder
• C) Better by $6,083 to rebuild existing extruder
• D) Better by $6,083 to purchase new extruder

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Definitions:

Lack of Sophistication

Lack of sophistication in negotiations refers to a minimal level of skill, expertise, or complexity displayed by one or more parties.

Inadequate Skill

Lacking sufficient ability, expertise, or competency to perform a task or handle a situation effectively.

Philosophical Differences

Fundamental disagreements on basic principles, beliefs, or concepts between individuals or groups.

Inexperience

Lacking knowledge, practice, or familiarity with something due to insufficient exposure or learning opportunities.