Reference no: EM131799781

Question - A CNC lathe, used in a production process, requires major repair. The machine could either be completely overhauled (repaired) for SX or replaced by a new machine for $1,100,000. MARR (the minimum attractive rate of return) is 10 %. The lathe is required for 5 additional years. The O/M (operating and maintenance) costs and the salvage values for both (existing and new) machines are given below:

End of year	1	2	3	4	5
Existing machine:
O/M cost, $/year	140,000	140,000	140,000	320,000	140,000
Salvage value, $	0	0	0	0	0
New machine:
O/M cost, $/year	55,000	55,000	115,000	55,000	55,000
Salvage value, $	900,000	760,000	430,000	200,000	65,000

Determine:                                                                        

a) the equivalent uniform annual cost of keeping (repairing and using) the existing machine if X = 470,000.

b) the range of values of X for which repair would be preferred.

c) the yearly saving if the machine is replaced and X = 710,000.

d) the internal rate of return of this Project if the machine is replaced and X = 750,000.