Should he replace the existing machinery with the new unit

Reference no: EM132168955

Question: Consider Problem involving Thomas Martin. When, if at all, should the old machinery be replaced with the new, given the following changes in the data. The old machine retains only 70% of its value in the market from year to year. The yearly costs of the old machine were $3000 in Year 1 and increase at 10% thereafter.

Problem: Five years ago, Thomas Martin installed production machinery that had a first cost of $25,000. At that time initial yearly costs were estimated at $1250 increasing by $500 each year. The market value of this machinery each year would be 90% of the previous year's value. There is a new machine available now that has a first cost of $27,900 and no yearly costs over its 5-year minimum cost life. If Thomas Martin uses an 8% before-tax MARR, when, if at all, should he replace the existing machinery with the new unit?

Reference no: EM132168955

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