Tax credits enabled and persuaded a company to invest in a new single material 3-D prototyping machine. A year after the system was up and running, two-material 3-D prototyping became the rage, and anyone who was not at the leading edge was losing customers. The company had a choice of

(a) overhauling the current system at a lower initial cost but with higher long-term maintenance costs, or

(b) replacing the system outright with lower long-term maintenance costs.

Assume that management is seeking an aggressive return (because of past errors) and sets MARR $=22 \%$. As well, assume that due to the rapidly changing technology environment the equipment has no salvage value at the end of the 5th year. Straight-line depreciation is used for simplicity. Which alternative is most favorable?

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Project Parameter First cost, P Operating costs, OE OE Annual Escalation. Service period, n Salvage value, SV Defender Upgrade Replacement $25,000 $15,000 $80,000 $2,000 $7,000 $4,000 25% 25% 10% 5 years 5 years 5 years $0 $0 $30,000