A new company is considering purchasing a new machine to replace its existing outdated one. The new machine costs $50,000 and is expected to last for 5 years. The maintenance cost for the new machine is estimated to be $2,000 per year, payable at the end of each year. The company expects the new machine to increase annual revenues by $12,000. However, due to technological advancements, the existing machine is expected to have increasing maintenance costs. The current maintenance cost for the old machine is $3,000, and it is expected to increase by $500 per year for the next 5 years. The old machine was purchased 2 years ago for $30,000 and was expected to last for a total of 8 years. The company uses a discount rate of 8% to evaluate the projects. Calculate the capitalized cost for the replacement option over the 5-year period.

A new company is considering purchasing a new machine to replace its existing outdated one. The new machine costs $50,000 and is expected to last for 5 years. The maintenance cost for the new machine is estimated to be $2,000 per year, payable at the end of each year. The company expects the new machine to increase annual revenues by $12,000. However, due to technological advancements, the existing machine is expected to have increasing maintenance costs. The current maintenance cost for the old machine is $3,000, and it is expected to increase by $500 per year for the next 5 years. The old machine was purchased 2 years ago for $30,000 and was expected to last for a total of 8 years. The company uses a discount rate of 8% to evaluate the projects. Calculate the capitalized cost for the replacement option over the 5-year period.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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