Question
A Few years ago, the ETM department installed a machine in its manufacturing lab for $10,000. The department is considering replacing the machine because maintenance
A Few years ago, the ETM department installed a machine in its manufacturing lab for $10,000. The department is considering replacing the machine because maintenance costs have been increasing. The estimated maintenance costs for the next 5 years are as follow:
Year | Maintenance Cost ($) |
1 | 975 |
2 | 1,275 |
3 | 1,375 |
4 | 1,625 |
5 | 1,775 |
Whenever the machine is replaced, the cost of removal will be $1,500 more than the machine is worth as scrap metal. The replacement the department is considering has an equivalent annual cost (EAC) = $900 at its most economic life. Should the machine be replaced now if the minimum attractive rate of return (MARR) is 10%?
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