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ABC Company purchased a machine 6 years ago for $350,000. Last year a replacement study was performed with the decision to retain the machine for
ABC Company purchased a machine 6 years ago for $350,000. Last year a replacement study was performed with the decision to retain the machine for 2 more years. However, this year the situation has changed. The machine is estimated to have a value of only $8,000 now and if it is to be kept in service, upgrading at a cost of $50,000 will be necessary to make it useful for up to 2 more years. Operating cost is expected to be $10,000 the first year and $15,000 the second year, with no salvage value at all. Alternatively, the company can purchase a new machine with an ESL of 7 years, no salvage value, and an equivalent annual cost of $-55,540 per year. The MARR is 10% per year. Using the estimates above, determine a) When the company should replace the upgraded machine? b) The minimum future Salvage Value of a new machine necessary to indicate that purchasing now is economically advantageous to upgrading
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