Problem
Allentown Paving owns a cement mixer which is 3 years old with an expected life of 10 years. The machine originally cost $3,000,000. Replacement cost prior to the appearance of the new technology was $2,200,000. A newer machine comes on the market with a cost of $3,600,000. Annual production of both technologies is 300,000 barrels _ of cement. Variable cost per barrel is $1 with the old mixer and $.50 for the new mixer. Allentown's cost of capital is 8 percent. The new machine has an extra life-of 10 years. Required:
a. Assuming that the old cement mixer is to be kept, determine the obsolescence write down if current values are being used.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.