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A company is studying two options concerning an existing special-purpose machine whose present net salvage value is estimated to be $10,000. The first option considers
A company is studying two options concerning an existing special-purpose machine whose present net salvage value is estimated to be $10,000. The first option considers retaining the machine for its remaining service life of 4 years and immediately supplementing it with a small new machine whose first cost, life, salvage value, and operating costs are $7,000,6 years, $3,000, and $1,500 per year, respectively. It is estimated that the old machine will have annual operating costs of $2,000, and a salvage value of $4,000 at the end of its life. The second option consists of having no machines, in which case the desired service will be subcontracted at a cost of $7,000 per year. Using a study period of 4 years and a MARR of 12%, which option should be selected? Answer: Sell existing machine
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