A six-year-old computer numerical control (CNC) machine that originally cost $8,000 has been fully depreciated, and its current market value is $1,500. If the machine is kept in service for the next five years, its O&M costs and salvage value are estimated as given in Table PI4.47
It is suggested that the machine be replaced by a new CNC machine of improved design at a cost of $6,000. It is believed that this purchase will completely eliminate breakdowns and the resulting cost of delays and that operation and repair costs will be reduced $200 a year from what they would be with the old machine. Assume a five-year life for the challenger and a $ 1,000 terminal salvage value. The new machine falls into a five-year MACRS property class. The firm's MARR
TABLE P14.47

is 12%, and its marginal tax rate is 30%. Should the old machine be replaced now?

O&M Costs End of Operation Delays Due to Salvage Year and Repairs Breakdowns Value 600$1,200 1,000 500 $1.300 1,500 1.700 1,900 2.000 800 1,000 1,200 1.400