A company ships toys to other countries. 5 years ago they bought a new automatic packaging machine for $150,000. The annual operating, maintenance and insurance costs, as well as the market value of the machine for each of the 10 years of its useful life are presented in the table. Now the company is evaluating the remaining 5 years of its investment to decide the optimal time to replace the machine. It uses 25% as the minimum acceptable rate of return after paying income taxes and depreciates his assets using the MACRS method. To make a decision, the company wants to use inflation in their analysis (the average of the inflation since they bought the machine until now). Its recommended that the analysis considering inflation be done both in real dollars and in current dollars and justify which one to use to make decisions.

Year	Operation Costs	Maintenance Costs	Insurance Costs	Market Value
1	$16,000	$4,000	$15000	$80,000
2-10	Increases by $4,000 per year	Increases by $3000 per year	Decreases by $1000 per year	Decreases by $5000 per year

Use Microsoft Excel to solve the analysis which consists of:

a. Establish decision criteria according to method used

b. Equivalence models needed as part of the analysis

c. Consider paying contributions for revenue, inflation and replacement