1. 5 years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complex parts used in commercial and military aircraft worldwide. It cost $350,000, had an estimated life of 15 years, and O&M costs of $50,000 per year. It was originally thought to have a salvage value of $20,000 at the end of 15 years but is now believed to have a remaining life of 5 years with no salvage value at that time. With business booming, the existing machine is no longer sufficient to meet production needs. It can be kept and supplemented by purchasing a new, smaller Machine S for $210,000 that will cost $38,000 per year for O&M, have a life of 10 years, and salvage value of $210,000(0.8t) after t years. As an alternative, a larger, faster, and more capable Machine L can be used alone to replace the current machine. It has cash price without trade-in of $450,000, O&M costs of $68,000 per year, salvage value of $450,000(0.8t) after t years, and a 15 year life. The present machine can be sold on open market for a maximum of $70,000, MARR is 30%, and the planning horizon is 5 years.

Clearly show the cash flow profile for each alternative using a cash flow approach (insiders viewpoint approach). Provide cash flow for year t=0, 3 and 5. Using an EUAC and a cash flow approach (insiders viewpoint approach), decide which is the more favorable alternative.

1. EUAC of the combination of multi-axis NC machine and machine S

2.EUAC of the machine L. Clearly show the cash flow profile for each alternative using an opportunity cost approach (outsiders viewpoint approach).

Provide cash flow for year t=0, 3 and 5.

Using an EUAC comparison and an opportunity cost approach (outsiders viewpoint approach), decide which is the more favorable alternative. 1. EUAC of the combination of multi-axis NC machine and machine S