Cushman Manufacturing Company has a five-year-old vertical numerical chucker (VNC) that has a current market value of

Question:

Cushman Manufacturing Company has a five-year-old vertical numerical chucker (VNC) that has a current market value of $5,000 and expected O&M costs of $3,000 this year, which increase by $1,500 per year. Future market values are expected to decline by $1,000 per year. The VNC machine can be used for another three years. The challenger costs $10,000 and has O&M costs of $2,000 per year, which increase by $1,000 per year. The machine will be needed for only three years, and the salvage value at the end of the three years is expected to be $4,000. The MARR is 15%.
(a) Determine the annual cash flows for retaining the old VNC machine for three years.
(b) Determine whether now is the best time to replace the old machine.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...

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