Determine if the current machine should be replaced

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Reference no: EM132014325

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 $77,000 or sold to a smaller company internationally for $38,000. The upgraded machine will have an annual operating cost of $93,000 per year and a $28,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $208,000. Its salvage value will be $42,000 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 economic analysis at 9% 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)

A. now .

B. three years from now .

b) The equivalent AW for the next three years is $ -------------

Reference no: EM132014325

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