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 P12.35 TABLE P12.35 O & M Costs End of Year Operation and Repairs Delays due to Repairs Salvage Value 1 $1,300 $600 $1,200 2 $1,500 $800 $1,000 3 $1,700 $1,000 $500 4 $1,900 $1,200 $0 5 $2,000 $1,400 $0 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 is 12%, and its marginal tax rate is 30%. Should the old machine be replaced now?

Short Case Studies with Excel