Reference no: EM131292021
A metal fabricator is considering the purchase of two new milling machines. Model A costs $65,000 to purchase, has annual operating costs of $2,000, requires a $5,000 overhaul every 3 years, and has a salvage value of $3,500 at the end of its 8 year useful life. Model B costs $52,000 to purchase, has annual operating costs of $2,100, requires a $5,000 overhaul every 2 years, and has a salvage value of $1,800 at the end of its 5 year service life. The milling machines are only needed for 6 years.
You may also lease the Model A milling machine for $3,500 a month which includes the cost of required overhauls but not the annual operating costs. If you purchase Model A, the company that leases this equipment would purchase it back from you at the end of year 6 is $12,000.
If the company’s MARR is %10, which milling machine should be purchased?
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