Practice Quiz Chapter 13

. A garment manufacturing company is currently manufacturing one of its products on a double-needle chain-stitch machine. The unit cost of the product is $10 and 2,500 units were produced and sold for $18 each during the past year. The company expects that both the future demand of the product and the unit price will remain steady at 2,500 units per year and $18 per unit. The old machine has a remaining useful life of 3 years. The old machine could be used on the open market now for $5,500. In 3 years, the old machine is expected to have a salvage value of $1,300. The new machine would cost $30,000 and the unit manufacturing cost on the new machine is projected to be $9. The new machine has an expected economic life of 4 years and an expected salvage value of $8,000. The appropriate MARR is 13%. The firm does not expect a significant improvement in technology and it needs the service of either machine for an indefinite period. Compute the AEC over the remaining useful life of the old machine if the firm decides to retain it.

a) $15975.41

b) $12445.78

c) $20655.85

d) $12335.22

. A garment manufacturing company is currently manufacturing one of its products on a double-needle chain-stitch machine. The unit cost of the product is $10 and 2,500 units were produced and sold for $18 each during the past year. The company expects that both the future demand of the product and the unit price will remain steady at 2,500 units per year and $18 per unit. The old machine has a remaining useful life of 3 years. The old machine could be used on the open market now for $5,500. In 3 years, the old machine is expected to have a salvage value of $1,300. The new machine would cost $30,000 and the unit manufacturing cost on the new machine is projected to be $9. The new machine has an expected economic life of 4 years and an expected salvage value of $8,000. The appropriate MARR is 13%. The firm does not expect a significant improvement in technology and it needs the service of either machine for an indefinite period. Compute the AEC over the economic service life of the new machine if the firm decides to purchase it.

a) 12445.78

b) $15975.41

c) $12335.22

d) $20655.85

. A garment manufacturing company is currently manufacturing one of its products on a double-needle chain-stitch machine. The unit cost of the product is $10 and 2,500 units were produced and sold for $18 each during the past year. The company expects that both the future demand of the product and the unit price will remain steady at 2,500 units per year and $18 per unit. The old machine has a remaining useful life of 3 years. The old machine could be used on the open market now for $5,500. In 3 years, the old machine is expected to have a salvage value of $1,300. The new machine would cost $30,000 and the unit manufacturing cost on the new machine is projected to be $9. The new machine has an expected economic life of 4 years and an expected salvage value of $8,000. The appropriate MARR is 13%. The firm does not expect a significant improvement in technology and it needs the service of either machine for an indefinite period. Should the machine be acquired now?

a) Yes

b) No

c) Indifferent

d) More information required

. WestTech considers replacing the existing system bought eight years ago for $41,000 and its current market value is $35,000. It is expected the existing system's market value will drop by $2,000 each year and the operating costs estimated to be $5,000 this year and will increase by $1,700 each subsequent year. The proposed system costs $70,000. It is estimated the loss of the market value of the proposed system will be $5,000 in the first year and decreasing by 7% each subsequent year. The operating expenses estimated to be $2,000 each year in the first three years, and then increasing by $1,000 each subsequent year. The opportunity cost of capital is 20%. Determine the marginal cost in Year 3 of the existing system.

a) $17,000

b) $18,300

c) $20,655

d) $22,350

. WestTech considers replacing the existing system bought eight years ago for $41,000 and its current market value is $35,000. It is expected the existing system's market value will drop by $2,000 each year and the operating costs estimated to be $5,000 this year and will increase by $1,700 each subsequent year. The proposed system costs $70,000. It is estimated the loss of the market value of the proposed system will be $5,000 in the first year and decreasing by 7% each subsequent year. The operating expenses estimated to be $2,000 each year in the first three-year, and then increasing by $1,000 each subsequent year. The opportunity cost of capital is 20%. Determine the marginal cost in Year 4 of the proposed system.

a) $15,700

b) $19,910

c) $21,350

d) $22,200

. WestTech considers replacing the existing system bought eight years ago for $41,000 and its current market value is $35,000. It is expected the existing system's market value will drop by $2,000 each year and the operating costs estimated to be $5,000 this year and will increase by $1,700 each subsequent year. The proposed system costs $70,000. It is estimated the loss of the market value of the proposed system will be $5,000 in the first year and decreasing by 7% each subsequent year. The operating expenses estimated to be $2,000 each year in the first three-year, and then increasing by $1,000 each subsequent year. The opportunity cost of capital is 20%. Determine the minimum-cost life of the proposed system.

a) Year 4

b) Year 5

c) Year 6

d) Year 7

. WestTech considers replacing the existing system bought eight years ago for $41,000 and its current market value is $35,000. It is expected the existing system's market value will drop by $2,000 each year and the operating costs estimated to be $5,000 this year and will increase by $1,700 each subsequent year. The proposed system costs $70,000. It is estimated the loss of the market value of the proposed system will be $5,000 in the first year and decreasing by 7% each subsequent year. The operating expenses estimated to be $2,000 each year in the first three-year, and then increasing by $1,000 each subsequent year. The opportunity cost of capital is 20%. Determine the minimum of EUAC of the propose system.

a) $16,254

b) $17,502

c) $20,291

d) $20,953

. WestTech considers replacing the existing system bought eight years ago for $41,000 and its current market value is $35,000. It is expected the existing system's market value will drop by $2,000 each year and the operating costs estimated to be $5,000 this year and will increase by $1,700 each subsequent year. The proposed system costs $70,000. It is estimated the loss of the market value of the proposed system will be $5,000 in the first year and decreasing by 7% each subsequent year. The operating expenses estimated to be $2,000 each year in the first three-year, and then increasing by $1,000 each subsequent year. The opportunity cost of capital is 20%. Determine when the existing system will be replaced by the proposed system.

a) Year 3

b) Year 4

c) Year 5

d) Year 6

. Please see the PDF attachment to answer this question. ThinkTech Ltd. Is thinking about adopting a new system to replace the current system. Which of the following statements is correct?

a) ThinkTech Ltd. should keep the existing system.

b) ThinkTech Ltd. should replace the existing system with the new system.

c) ThinkTech Ltd. should keep both the existing system and the new system.

d) ThinkTech Ltd should reject both the existing system and the new system.

. Which of the following statements is correct?

a) If the marginal cost of the defender is higher than the marginal cost of the challenger, keep the defender.

b) If the marginal benefit of the challenger is greater than the marginal benefit of the defender, keep the defender.

c) If the marginal cost of the defender is equal to the minimum EUAC of the challenger, replace the defender with the challenger.

d) If the minimum EUAC of the challenger is less than the marginal cost of the defender, replace the defender with the challenger.

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