This paper circulates around the core theme of Adams must buy a machine that has the capacity to produce 50,000 units of its product annually. The existing equipment can produce the product at a unit cost of $16. Today it has a book value of $80,000 and a market value of $60,000. The new equipment cou together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Adams
Products, Inc. manufactures a product it sells for $25. Adams sells all of the
24,000 units per year it is capable of producing at the current time, and a
marketing study indicates that it could sell 14,000 more units per year. To
increase its capacity, Adams must buy a machine that has the capacity to
produce 50,000 units of its product annually. The existing equipment can
produce the product at a unit cost of $16. Today it has a book value of $80,000
and a market value of $60,000. The new equipment could produce 50,000 units at
a unit cost of $12. The new equipment would cost $500,000 and would be
depreciated uniformly over its five-year life. If the new machine is purchased,
fixed operating costs will decrease by $20,000 per year.
Question:
-If Adams’s cost of capital is 18
percent and its tax rate is 30 percent, should Adams buy the new machine? Why?