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 for
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 for
repairs, adjustments, and shutdowns. A new machine is available to accomplish the
functions desired and has an initial cost of $3,500. Its maintenance costs are expected to
be $50 per year during its service of 5 years. The approximate market value of the present
machine has been roughly $1,200. If the operating cost (other than maintenance) for both
machines are equal, show whether it is economical to purchase the new machine. Perform
a before-tax study, using an interest rate of 12% and assume that the salvage values will be
negligible.
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