Gopher Manufacturing Is Considering Purchasing New Calibration Equipment to Improve

Essay

Gopher Manufacturing is considering purchasing new calibration equipment to improve the quality of its processes. The equipment has an initial cost of $66,000 and a market value of $52,000 at the end of its useful life of 10 years. Net annual revenue is estimated based on the production and market conditions and is shown below. If the optimistic and pessimistic values each have an estimated 11% chance of occurring, determine whether the equipment should be purchased on the basis of the expected value of AW. Use a MARR of 8% per year. $$\begin{array} { | l | l | l | l | } \hline & \text { Optimistic } & \text { Most likely } & \text { Pessimistic } \\\hline \text { Net annual revenue, } \$ / y e a r & 93,500 & 90,000 & 88,500 \\\hline\end{array}$$