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The electrode update will occur in December 31 1980. It will cost $2.25 million (i.e. this is additional Cap Ex paid at December 31 1980). This cost will be depreciated straight-line over 10 years. It is estimated that once installed, the upgrade will eliminate all graphite costs and will cut power costs by 17.5% (i.e. starting in 1981). These cost savings from the upgrade will last until the plant abandonment at the end of 1990. As with the rest of PP&E, assume that the upgrade has zero value in liquidation.
All other information about the plant remains the same as in Question 1.
Do you recommend that Dixon pays the $2.25 million to upgrade the Collinsville plant?
Do you recommend the purchase of the Collinsville plant for $12 million with the anticipated electrode update in 1980?
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