The Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The annual operating and maintenance costs for the sprayer amount to $15,000 per year. Due to an increase in business, a new sprayer must be purchased. Georgia Ceramic is faced with two options.
• Option 1: If the old sprayer is retained, a new smaller capacity sprayer will be purchased at a cost of $48,000, and it will have a $5,000 salvage value in 10 years. This new sprayer will have annual operating and maintenance costs of $12,000. The old sprayer has a current market value of $6,000.
• Option 2: If the old sprayer is sold, a new sprayer of larger capacity will be purchased for $84,000. This sprayer will have a $9,000 salvage value in 10 years and will have annual operating and maintenance costs of $24,000.
Which option should be selected at MARR = 15%?