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A machine now in use, which was bought five years ago for $4,000, has been fully depreciated. It can be sold now for $2,500, but

A machine now in use, which was bought five years ago for $4,000, has been fully depreciated. It can be sold now for $2,500, but could be used for 3 more years (remaining useful life), at the end of which time it would have salvage value of $100. The annual operating and maintenance costs for the old machine amount to $8,000. A new machine representing a new technology can be purchased at an invoice price of $14,000 to replace the present equipment. Because of the nature of the manufactured product, the new machine has an expected economic life of 3 years, and it will have no salvage value at the end of that time. The new machines expected operating and maintenance costs amount to $2,000 for the first year and $3,000 for each of the next 2 years. Assume MARR of 15% to answer the following questions:

Is there any sunk cost present?

At what rate the old machine will be depreciated

Should the old machine be replaced? If the answer is yes, when should it be replaced?

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