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 $200,000 that will cost $33,000 per year for O&M, have a life of 10 years, and salvage value of $200,000(0.8^t) 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 $440,000, O&M costs of $72,000 per year, salvage value of $440,000(0.8^t) 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 15%, and the planning horizon is 5 years.

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.

t	Machine NC & S Cash flow	Machine L Cash flow
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1

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2

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3

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4

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5

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