Answer to Question #40200 in Economics of Enterprise for Brookie skiles

Question

5. The Golf Range is considering replacing their ball-dispensing machine at its facility. The old machine cost $50,000 five years ago, and currently is worth $10,000. The new machine would cost $76,000, would be depreciated on a straight-line basis over its seven-year life, and would have a zero salvage value. The anticipated income from the project is $34,000 a year with $14,400 of that amount being variable cost. There is also a fixed cost for maintenance every 2 years (yr 2, yr 4, yr 6) of $10,000. If the company’s RRR is 10%, should they purchase the new machine?