A contractor can purchase a used machine for $1000. The market value of the machine is...

 

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A contractor can purchase a used machine for $1000. The market value of the machine is expected to decrease $70 the first year and $60 per year, the second and third years. Operating disbursement is estimated at $8000 the first year and is expected to increase by $175 a year thereafter. An alternative is to buy a new machine costing $10000. It is believed that the salvage value of this machine will decrease by 15% each year over a maximum service life of 20 years. The operating expenses are estimated at $6050 the first year and are expected to increase by $135 a year after that. If the MARR is 10%, which machine should be bought, and when should that machine be replaced? (Assume that the used machine is unique, but that new machines are always available.) A contractor can purchase a used machine for $1000. The market value of the machine is expected to decrease $70 the first year and $60 per year, the second and third years. Operating disbursement is estimated at $8000 the first year and is expected to increase by $175 a year thereafter. An alternative is to buy a new machine costing $10000. It is believed that the salvage value of this machine will decrease by 15% each year over a maximum service life of 20 years. The operating expenses are estimated at $6050 the first year and are expected to increase by $135 a year after that. If the MARR is 10%, which machine should be bought, and when should that machine be replaced? (Assume that the used machine is unique, but that new machines are always available.)

Answer rating: 100% (QA)

Answer The contractor should buy the new machine The present value of the new machine is 826492 and ... View the full answer