Mountain Gear Has Been Using the Same Machines to Make

question 52

Multiple Choice

Mountain Gear has been using the same machines to make its name-brand clothing for the last five years.A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery.The old machines cost the company $100,000.The old machines presently have a book value of $60,000 and a market value of $6,000.They are expected to have a five-year remaining life and zero salvage value.The new machines would cost the company $50,000 and have operating expenses of $9,000 a year.The new machines are expected to have a five-year useful life and no salvage value.The operating expenses associated with the old machines are $15,000 a year.The new machines are expected to increase quality,justifying a price increase and thereby increasing sales revenue by $5,000 a year.Select the true statement.

• A) The company will be $11,000 better off over the five-year period if it replaces the old equipment.
• B) The company will be $20,000 better off over the five-year period if it keeps the old equipment.
• C) The company will be $12,000 better off over the five-year period if it replaces the old equipment.
• D) The company will be $6,000 better off over the five-year period if it replaces the old equipment.

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Definitions:

Variance Inflation Factor

A measure used to detect the presence of multicollinearity in a regression analysis.

Independent Variables

Variables in an experiment or model that are manipulated or changed to observe their effect on dependent variables.

Multiple R

Represents a measure of the correlation between observed and predicted values of a variable in multiple regression analysis, indicating the strength and direction of a linear relationship.

Autocorrelation

A measure of how correlated a variable is with itself over successive time intervals, often used in time series analysis.