Alpha Ltd. makes specialized metal engine stampings for one of the major automobile manufacturers. Alpha is considering replacing one of the stamping machines used in the production of this product. The new machine would have a useful life equal to the remaining useful life of the current machine. However, the controller is hesitant because the stamping machine is a specialized piece of equipment and, due to the limited second-hand market for such a machine, the current one could only be sold for $150,000, resulting in a loss on disposal of $250,000.
The following data are available on all aspects of the two alternatives:
Required:
Ignoring income taxes and time value of money, prepare a quantitative analysis of the best course of action for Alpha with regard to the two alternatives.
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