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CRE · Question #339
CRE Question #339: Real Exam Question with Answer & Explanation
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Question
Which of the following techniques would you use to determine the cost effectiveness of a new production machine, amortized over 5 years of expected useful life ? Current warranty costs are $50,000/year for this production line. The new machine plus associated costs will require a $150,000 investment, but warranty costs are projected to drop to $30,000/year. Consider that administrative overhead is 25%, the profit coefficient is 8%, and present worth is subject to 5% discounting.
Options
- ASummed costs comparison.
- BReturn on investment analysis
- CSingle payment compound amount factor analysis.
- DDiscounted net return analysis.
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