A firm is considering replacing a machine that has been used to make a certain kind of packaging material. The new, improved machine will cost $31,000 installed and will have an estimated economic service life of 10 years, with a salvage value of $2,500. Operating costs are expected to be $1,000 per year throughout the service life of the machine. The old machine (still in use) had an original cost of $25,000 four years ago, and at the time it was purchased, its service life (physical life) was estimated to be seven years, with a salvage value of $5,000. The old machine has a current market value of $7,700. If the firm retains the old machine, its updated market values and operating costs for the next four years will be as follows: Year-End Operating Costs Market Value Book Value 0 $7,700 $7,889 1 4,300 5,578 $3,200 2 3,300 3,347 3,700 3 1,100 1,116 4,800 4 0 0 5,850 The firm's MARR is 12%. (a) Working with the updated estimates of market values and operating costs over the next four years, determine the remaining useful life of the old machine. (b) Determine whether it is economical to make the replacement now.

A firm is considering replacing a machine that has been used to make a certain kind of packaging material. The new, improved machine will cost $31,000 installed and will have an estimated economic service life of 10 years, with a salvage value of $2,500. Operating costs are expected to be $1,000 per year throughout the service life of the machine. The old machine (still in use) had an original cost of $25,000 four years ago, and at the time it was purchased, its service life (physical life) was estimated to be seven years, with a salvage value of $5,000. The old machine has a current market value of $7,700. If the firm retains the old machine, its updated market values and operating costs for the next four years will be as follows: Year-End Operating Costs Market Value Book Value 0 $7,700 $7,889 1 4,300 5,578 $3,200 2 3,300 3,347 3,700 3 1,100 1,116 4,800 4 0 0 5,850 The firm's MARR is 12%. (a) Working with the updated estimates of market values and operating costs over the next four years, determine the remaining useful life of the old machine. (b) Determine whether it is economical to make the replacement now.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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