Question

Dan​ Jacobs, production manager for​ GreenLife, invested in​ computer-controlled production machinery last year. He purchased the machinery from Superior Design at a cost of​ $3,000,000. A representative from Superior Design has recently contacted Dan because the company has designed an even more efficient piece of machinery. The new design would double the production output of the​ year-old machinery but would cost GreenLife another​ $4,500,000. Jacobs is afraid to bring this new equipment to the company​ president's attention because he convinced the president to invest​ $3,000,000 in the machinery last year. Explain what is relevant and irrelevant to​ Jacobs' dilemma. What should he​ do?

Answer 1

The pertinent focuses for Dan​ Jacobs choice are referenced beneath.

• The new hardware would cost GreenLife $4,500,000
• The new hardware would twofold the creation yield of the old apparatus

The expense of new hardware and the expansion in the creation yield by 100% are the future expenses and incomes and thus they are significant for dynamic.

The old apparatus is bought previously. Consequently, the price tag of the old apparatus is immaterial for dynamic procedure. Tho director ought to consider the resale estimation of old apparatus in the dynamic. Tho resale estimation of old apparatus ought to be deducted from the expense of new hardware so as to ascertain the net money surge to buy the new apparatus.

The director ought to set up an expense and advantage examination or ascertain NPV (net present estimation) of the venture (capital planning investigation) to introduce it before the leader of the organization. The extra costs identified with extra creation ought to likewise be thought of. This investigation would support the supervisor and the president in dissecting that whether they should buy the new machine or not.