A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for$88,000 or sold to a smaller company internationally for $50,000. The upgraded machine will have an annual operating cost of$88,000 per year and a $24,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 moreyears, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which willserve the company now and for a maximum of 8 years, costs $223,000. Its salvage value will be $56,000 for years 1 through 5;$20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economicanalysis at 11% per year using a specified 3-year planning horizon.a) Determine if the current machine should be replaced now or 3 years from now.b) Once decided, determine the equivalent AW for the next three years.a) The current machine should be replaced [(Click to select)b) The equivalent AW for the next three years is $

The concept of equivalent annual worth (AW) is a way of comparing the annual cash flows of different…

Answered: a) The current machine should be…

Business

Economics

a) The current machine should be replaced [[(Click to select) b) The equivalent AW for the next three years is $[ ▼

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. One year ago, a machine was purchased at a cost of $2,000, to be used for 6 years.However, the machine has failed to perform properly and has a cost of $500 per year forrepairs, adjustments, and shutdowns. A new machine is available to accomplish thefunctions desired and has an initial cost of $3,500. Its maintenance costs are expected tobe $50 per year during its service of 5 years. The approximate market value of the presentmachine has been roughly $1,200. If the operating cost (other than maintenance) for bothmachines are equal, show whether it is economical to purchase the new machine. Performa before-tax study, using an interest rate of 12% and assume that the salvage values will benegligible.