Reduce the operating expenses

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Reference no: EM13994622

A certain 5-year-old machine has a salvage value of $1200 if sold today, and of $400 if sold 5 years from now. Its operating expenses are $800 per year. A new improved machine is available for $2400, has expected operating expenses of $500 per year, and has a salvage value of $1000 at the end of its 5-year economic life. There is also the possibility of overhauling the old machine at a cost of $600, which would increase the salvage value in 5 years by $200 and reduce the operating expenses by $200 per year. If the MARR is lo%, which course of action should be taken?

Reference no: EM13994622

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