Find the economic service life of this new machine

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A new machine would cost $18,000, have operating costs of $1,000 in the first year, and have a salvage value of $10,000 at the end of the first year. For the remaining years, operating costs increase each year by 15% over the previous year’s operating costs. The salvage value declines each year by 25% for the previous year’s salvage value. The machine has a maximum life of seven years. An overhaul costing $3,000 and $4,500 will be required during the fifth and seventh years of service, respectively. The firm’s required rate of return is 15%. Find the economic service life of this new machine.

Reference no: EM13983964

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