Four years ago, a firm purchased an industrial batch oven for $23,000. The oven had an estimated

Question:

Four years ago, a firm purchased an industrial batch oven for $23,000. The oven had an estimated life of 10 years with $1,000 salvage value. These original estimates are still good. If sold now, the machine will bring in $2,000. If sold at the end of the year, it will bring in $1,500. The market value after the first year has decreased at annual rate of 25%. Annual operating costs for subsequent years are $3,800. A new machine will cost $50,000 and have a 12-year life with a $3,000 salvage value. The operating cost for the new machine will be $3,000 as of the end of each year, where the $6,000-per-year savings are due to better quality control. If the firm’s MARR is 10%, should the new machine be purchased now?

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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