| Question |
Five years ago, Thomas Martin purchased and implemented production machinery that had a first cost of $25,000. At the time of the initial purchase it was estimated that yearly costs would be $1250, increasing by $500 in each year that followed. It was also estimated that the market value of this machinery would be only 90% of the previous year’s value. It is currently projected that this machine will be useful in operations for 5 more years. There is a new machine available now that has a first cost of $27,900 and no yearly costs over its 5 year-minimum cost life. If Thomas Martin uses an 8% before-tax MARR, when, if at all, should he replace the existing machinery with the now unit? |
