One year ago, a machine was purchased at a cost of $2,000, to be useful 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 life of 5 years. The approximate market value of the present machine has been roughly $1,200. If the operating costs (other than maintenance) for both machines are equal, show whether it is economical to purchase the new machine. Perform a Replacement study using an interest rate of 12%, and assume that the salvage values will be negligible.
One year ago, a machine was purchased at a cost of $2,000, to be useful 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 life of 5 years. The approximate market value of the present machine has been roughly $1,200. If the operating costs (other than maintenance) for both machines are equal, show whether it is economical to purchase the new machine. Perform a Replacement study using an interest rate of 12%, and assume that the salvage values will be negligible.
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