Homework Answers
in case of old machine:
the production of antiquated machine for 1 year: 260 x 40 = 10400
cost of production: 10400 x $6.10 = $63440
profit of produced goods per year: 10400 x ($9.30 - $6.10) = $33280
total profit in 2 years: $33280 x 2 = $66560
In case the machine is replaced
the production of machine for 1 year = 260 x 80 = 20800
cost of production 20800 x $6.10 = $126880
profit of produced goods per year 20800 x ($9.30 - $6.10) = $66560
total profit in 2 years: $133120
in addition, cost of the machine is: $69660
hence net profit is: $133120 - $69660 = $63460
CONCLUSION:
Replacing the machine will result in net loss of $66560 - $63460 = $3100
therefore, Waterways should keep the old machine.
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