Advanced Electrical Insulator Company is considering replacing a broken inspection machine, which has been used to test the mechanical strength of electrical insulators with a newer and more efficient one. If repaired, the old machine can be used for another five years. Alternatively, the firm can sell the machine to another firm in the industry now for $6, 000 and the price is expected to decline by $1, 000 each year. If the machine is kept, it will require an immediate $3, 800 overhaul to restore it to operable condition. The overhaul will neither extend the service life originally estimated nor increase the value of the inspection machine. The operating costs are estimated at $2, 000 during the first year and expected to increase by $1, 100 per year. The new machine costs $15, 000 and will have operating costs of $2, 000 in the first year, increasing by $800 per year thereafter. The expected salvage value is $6, 000 after one year and the salvage value will decline 15% each following year. The new machine has a useful life of 8 years and the company uses a MARR of 10%.

(a) What is the economic service life of the new machine? (b) What is the marginal cost for each year of additional use of the old machine? (c) When (if ever) should the company plan to replace the current machine with the new machine?

(Method: Excel)!!!!