Runder Company Is Evaluating a Proposal to Purchase a New

question 130

Essay

Runder Company is evaluating a proposal to purchase a new machine that would cost $100,000 and have a salvage value of $10,000 in four years.It would provide annual operating cash savings of $10,000,as follows:
If the new machine is purchased,the old machine will be sold for its current salvage value of $20,000.If the new machine is not purchased,the old machine will be disposed of in four years at a predicted salvage value of $2,000.The old machine's present book value is $40,000.If kept,in one year the old machine will require repairs predicted to cost $35,000.
Dale Davis's cost of capital is 14%.
Required: Should the new machine be purchased? Why or why not?
$\begin{array}{lrr}&\text { Old Machine}&\text { New Machine }\\\text { Salaries } & \$ 40,000 & \$ 36,000 \\\text { Supplies } & 7,000 & 5,000 \\\text { Maintenance } & 9,000 & 5,000 \\\text { Total } & \$ 56,000 & \$ 46,000\end{array}$

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Definitions:

Target Market

A particular demographic of customers targeted by a business for its goods and services.

Gantt Chart

A visual project management tool that outlines and schedules tasks along a timeline, used for planning and tracking project progress.

Implementation Phase

The implementation phase is the stage in a project or plan where strategies and designs are put into action, marking the transition from planning to actual execution.

Obtain Resources

The act of acquiring the necessary materials, finances, or human skills required for undertaking a specific task or project.