A 3 year-old a computer-controlled fabric cutting machine, which had a $20,000 purchasing price, has a current market (trade-in) value of $12,000 and expected O&M costs of $8,000, increasing by $1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be used for another 7 years at most. The new machine has a $40,000 purchasing price. The new machines O&M cost is estimated to be $4,000 for the first year, decreasing at an annual rate of $100 thereafter. The firms MARR is 20%. Assume a unique minimum AEC(20%) for both machines (both the current and replacement machine).

(This is an infinite horizon decision problem).

If the new machine's economic service life is three years, how much is saved in PEC (present equivalent cost, so at n=0) by keeping the defender only for one extra year when marginal analysis dictates (so PEC of savings by choosing j0 correctly).