Milliken uses a digitally controlled “dyer” for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. Its market value will be $310,000 at the end of the first year and decrease $40,000 per year thereafter to a minimum of $30,000. Operating costs are $20,000 the first year, increasing 8% per year. Maintenance costs are only $8,000 the first year but will increase 35% each year thereafter. Milliken’s MARR is 20%. Determine the optimum replacement interval for the dyer.
Milliken uses a digitally controlled “dyer” for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. Its market value will be $310,000 at the end of the first year and decrease $40,000 per year thereafter to a minimum of $30,000. Operating costs are $20,000 the first year, increasing 8% per year. Maintenance costs are only $8,000 the first year but will increase 35% each year thereafter. Milliken’s MARR is 20%. Determine the optimum replacement interval for the dyer.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 54P
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Milliken uses a digitally controlled “dyer” for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. Its market value will be $310,000 at the end of the first year and decrease $40,000 per year thereafter to a minimum of $30,000. Operating costs are $20,000 the first year, increasing 8% per year. Maintenance costs are only $8,000 the first year but will increase 35% each year thereafter. Milliken’s MARR is 20%. Determine the optimum replacement interval for the dyer.
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