Problem:
Moore manufacturing is currently operating at full capacity of 15000 units per year, and not able to keep up with demand for its products. demand is estimated at 20,000 units per year, expected to continue for the next four years.
The company is considering purchasing additional new equipment costing $550,000, with an expected useful life of 4 years and has a salvage value of $50,000. instillation of of the machine is estimated to cost $45,000 before it can be used for production.
Current operating data: sales price--$175/unit, variable costs : manufacturing $60, marketing $20,$80., fixed cost; manufacturing $25, marketing/administration $15, $40, and $125. operating income before tax $55.
The purchase of the new equipment have no effect on variable cost. fixed manufacturing costs is expected to 125,000 annually. What is the initial investment outlay. What effect will purchase have on the operating profit?