The Container Corporation of America is considering replacing an automatic paint
ID: 1195520 • Letter: T
Question
The Container Corporation of America is considering replacing an automatic painting machine purchased 9 years ago for $700,000. It has a market value today of $40,000. The unit costs $350,000 annually to operate and maintain. A new unit can be purchased for $800,000 and will have annual O&M costs of $120,000. If the old unit is retained, it will have no salvage value at the end of its remaining life of 10 years. The new unit, if purchased, will have a salvage value of $100,000 in 10 years. Analyze this using an EUAC measure and a MARR of 20% to perform a before-tax analysis to see if the automatic painting machine should be replaced if the old automatic painting machine is taken in as a trade-in for its market value of $40,000.
a) Use the cash flow approach (insider's viewpoint approach).
b) Use the opportunity cost approach (outsider's viewpoint approach).
The answers are a) replaced and b) replaced, but i dont understand the answers.
Explanation / Answer
The Container Corporation of America is considering replacing an automatic paint
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