1) Your company has a choice between replacing vs. repairing a used piece of equipment. Repair would cost $20,000, and would make the equipment usable for the next five years, with a salvage value of $5,000 at that time. If you instead sell the equipment now, you believe you could get $15,000 for it. A replacement would cost $100,000, and would be usable for 20 years, with no salvage value at that time.

You estimate that the old repaired equipment would have higher operating costs than a new machine, by an amount of $3,000 per year. Assume that your minimum acceptable rate of return is 10% per year before taxes. Which option would you recommend?