A firm is considering replacing a machinethat has been used to make a certain kind of packaging material. The new, improved machine willcost $31,000 installed and will have an estimatedeconomic life of 10 years with a salvage value of$2,500. Operating costs are expected to be $1,000per 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 estimatedto be seven years with a salvage value of $5,000. Theold machine has a current market value of $7,700. Ifthe firm retains the old machine, its updated marketvalues and operating costs for the next four years willbe as given in Table P14.8.The firm’s MARR is 12%.(a) Working with the updated estimates of marketvalues and operating costs over the next fouryears, determine the remaining useful life of theold machine.(b) Determine whether it is economical to make thereplacement now.(c) If the firm’s decision is to replace the oldmachine, when should it do so?
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 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 given in Table P14.8.
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.
(c) If the firm’s decision is to replace the old
machine, when should it do so?
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