A company has 7000 obsolete toys carried in inventory at a manufacturing cost of $6 per unit. If the toys are reworked for $2 per unit, they could be sold for $3 per unit. If the toys are scrapped, they could be sold for $1.85 per unit. Which alternative is more desirable(rework/scrap), and what is the total dollar amount of the advantage of that alternative?
b) A company is investing in a machine with a 3 year life. The machine is expected to reduce annual cash operating costs by $30,000 in each of the first 2 years and by $20,000 in year 3. Present value factors follow:
For $1 for an annuity of $1
Period 1 0.88 0.88
Period 2 0.79 1.65
Period 3 0.67 2.32
Using a 14% cost of the capital, what is the present value of these future savings?