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Assume that you are trying to replace an old machine that was purchased 10 years ago at a cost of $25,000. It has a current market value of $4,000. You can overhaul the machine for $1,000. This would extend the life of the machine for another 3 years the following O&M costs End of Market O&M

Assume that you are trying to replace an old machine that was purchased 10 years ago at a cost of $25,000. It has a current market value of $4,000. You can overhaul the machine for $1,000. This would extend the life of the machine for another 3 years the following O&M costs End of Market O&M

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Question 6 Assume that you are trying to replace an old machine that was purchased 10 years ago at a cost of $25,000. It has a current market value of $4,000. You can overhaul the machine for $1,000. This would extend the life of the machine for another 3 years the following O&M costs End of Market O&M Year Value Cost 1 $3,000 $3,500 2 $2,250 $4,500 3 $1,688 $5,500 Alternatively, you can buy a new machine for $12,000 with an economic life of 5 years. The annual equivalent cost is $5900 (assume that this is already precalculated for you). The firm's MARR is 12% 1. What is the remaining economic service life 2. What is your decision? Keep the old one or buy the new one
Transcribed Image Text:Question 6 Assume that you are trying to replace an old machine that was purchased 10 years ago at a cost of $25,000. It has a current market value of $4,000. You can overhaul the machine for $1,000. This would extend the life of the machine for another 3 years the following O&M costs End of Market O&M Year Value Cost 1 $3,000 $3,500 2 $2,250 $4,500 3 $1,688 $5,500 Alternatively, you can buy a new machine for $12,000 with an economic life of 5 years. The annual equivalent cost is $5900 (assume that this is already precalculated for you). The firm's MARR is 12% 1. What is the remaining economic service life 2. What is your decision? Keep the old one or buy the new one
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