Reference no: EM132169152

Question: The Plant Department of the local telephone company purchased four special pole hole diggers 8 years ago for $14,000 each. They have been in constant use to the present. Owing to an increased workload, additional machines will soon be required. Recently an improved model of the digger was announced. The new machines have a higher production rate and lower maintenance expense than the old machines but will cost $32,000 each with a service life of 8 years and salvage value of $750 each. The four original diggers have an immediate salvage of $2000 each and an estimated salvage value of $500 each 8 years hence. The average annual maintenance expense of the old machinesis about $1500 each, compared with $600 each for the new machines. A field study and trial show that the workload would require three additional new machines if the old machines continue in service. However, if the old machines were all retired from service, the workload could be carried by six new machineswith an annual savings of $12,000 in operation costs. A training program to prepare employees to run the machines will be necessary at an estimated cost of $700 per new machine. If the MARR is 9% before taxes, what should the company do?