Yumatu Tech is considering replacing one of its machines with a new one. The firm purchased the
Question:
Yumatu Tech is considering replacing one of its machines with a new one. The firm purchased the machine 9 years ago at a cost of $230,000. The machine had an expected salvage value of $15,000. The original salvage estimate is still valid, and the machine has a remaining economic service life of two years. The firm can sell this old machine now to another firm in the industry for $25,000. The new machine can be purchased for $150,000, including installation costs. It has an estimated economic service life of eight years. The new machine is expected to reduce cash operating expenses by $25,000 per year over its eight-year life, at the end of which the machine is estimated to be worth only $4,000. The company has a MARR of 12%.
If the firm needs the service of these machines for an indefinite period and no technology improvement is expected in future machines, what will be your decision? Would you keep the old machine or replace it with the new one now?
Statistical Techniques in Business and Economics
ISBN: 978-0078020520
16th edition
Authors: Douglas Lind, William Marchal