Question99)Managers of a factory want to make a replacement analysis for a machine that needs to be upgraded if they will continue using it in production. The upgrade will cost $50,000 and the machine can be kept for a maximum of 3 years after that. The salvage value will be $20,000 if sold at the end of first year, or it will be zero. Annual operating cost will be $40,000 the first year and increase by $10,000 each year. A new machine can be purchased for $150,000 with a maximum useful life of 7 years. Its salvage value is described by the relation S = 120,000 - 20,000 k, where k is the number of years since it was purchased. (Salvage value cannot be less than 0). The annual operation costs are estimated with equation AOC = 60,000 + 10,000 k. If the interest rate is 15% per year, determine if and when the machine should be replaced..
Question99)Managers of a factory want to make a replacement analysis for a machine that needs to be upgraded if they will continue using it in production. The upgrade will cost $50,000 and the machine can be kept for a maximum of 3 years after that. The salvage value will be $20,000 if sold at the end of first year, or it will be zero. Annual operating cost will be $40,000 the first year and increase by $10,000 each year. A new machine can be purchased for $150,000 with a maximum useful life of 7 years. Its salvage value is described by the relation S = 120,000 - 20,000 k, where k is the number of years since it was purchased. (Salvage value cannot be less than 0). The annual operation costs are estimated with equation AOC = 60,000 + 10,000 k. If the interest rate is 15% per year, determine if and when the machine should be replaced..
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