A small manufacturing firm is considering purchasing a new boring machine to modernize one of its production lines. Two types of boring machines are available on the market. The lives of machine A and machine B are eight years and 10 years, respectively. The machines have the following receipts and disbursements:
Use a MARR (after tax) of 10% and a marginal tax rate of 30%, and answer the following questions.
(a) Which machine would be most economical to purchase under an infinite planning horizon? Explain any assumption that you need to make about future alternatives.
(b) Determine the break-even annual O&M costs for machine A so that the annual equivalent cost of machine A is the same as that of machine B.

(c) Suppose that the required service life of the machine is only five years. The salvage values at the end of the required service period are estimated to be $3,000 for machine A and $3,500 for machine B. Which machine is more economical?

Item First cost Service life Salvage value Annual 0&M costs Depreciation Machine A $6.000 8 years $500 $700 7 years Machine B $8,500 10 years $1.000 520 years (MACRS)