A company is considering replacing an old machine with a new machine that will cost $75,000. It will reduce operating expenses by $7,500 per year compared to the old machine. They expect to sell the new machine at the end of 5 years for $60,000. Alternatively, the old machine could be repaired in order to extend its useful life for five more years. The old machine can be sold today for $5,000, but it will have no resale value 5 years from now. How much can the company justify spending to repair the old machine? Assume MARR = 10% with no inflation. b. $4500 c. $5500 a. $3500 d. $6500 e. $7500
A company is considering replacing an old machine with a new machine that will cost $75,000. It will reduce operating expenses by $7,500 per year compared to the old machine. They expect to sell the new machine at the end of 5 years for $60,000. Alternatively, the old machine could be repaired in order to extend its useful life for five more years. The old machine can be sold today for $5,000, but it will have no resale value 5 years from now. How much can the company justify spending to repair the old machine? Assume MARR = 10% with no inflation. b. $4500 c. $5500 a. $3500 d. $6500 e. $7500
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A company is considering replacing an old machine with a new machine that will cost $75,000.
It will reduce operating expenses by $7,500 per year compared to the old machine. They expect to sell
the new machine at the end of 5 years for $60,000. Alternatively, the old machine could be repaired in
order to extend its useful life for five more years. The old machine can be sold today for $5,000, but it
will have no resale value 5 years from now. How much can the company justify spending to repair the
old machine? Assume MARR = 10% with no inflation.
a. $3500
b. $4500 c. $5500
d. $6500
e. $7500
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