An economic analysis is to be made to determine if an existing lathe in the plant should be replaced. A $4,000 overhaul must be done now if the equipment is to be retained in service. Estimated maintenance costs for the existing lathe are as given in the table below. The existing lathe has a maximum useful life of 4 years (but you do not have to keep it that long) and no present or future salvage value.

A new lathe costing $10,000 is being considered to replace the existing one. The manufacturers warranty will pay all maintenance costs during the first year. Maintenance and repair costs for subsequent years are as given in the table below. If you buy the new lathe, you will keep it for 4 years with no future salvage value.

Given a MARR of 8%, what should you do?

	Maintenance cost
Time	Existing lathe	New Lathe
0
1	-$1,800	$0
2	-$1,800	-$600
3	-$2,800	-$1,200
4	-$4,800	-$1,800