A 4 year-old die - casting machine, of market value $3500, is 50% too small for future

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A 4 year-old die - casting machine, of market value $3500, is 50% too small for future production needs. A new machine with identical production capacity costs $5000 installed. Both machines are expected to have economic lives of 6 years from this date. Salvage values at that date will be $1000 for the new, and $700 for the old, machine. Annual operating expenses for the new and old machines are expected to be $3500 and $4000, respectively. A double - capacity machine is also available; its installed cost is $12000, with a Salvage value of $2000 at the end of its 6 - year economic life. Operating costs are expected to be $6000 per year. If the MARR is lo%, which machine should be purchased? ANSWER: EUACnew,small= $9231, EUACIarge= $8496; buy the large machine
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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