As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $70,000. Its operating costs are $30,000 a year, but in five years the machine will require a $30,000 overhaul. Thereafter operating costs will be $40,000 until the machine is finally sold in year 10 for $7,000.

The older machine could be sold today for $45,000. If it is kept, it will need an immediate $30,000 overhaul. Thereafter operating costs will be $40,000 a year until the machine is finally sold in year 5 for $7,000.

Both machines are fully depreciated for tax purposes. The company pays tax at 35%. Cash flows have been forecasted in real terms. The real cost of capital is 12%. (Use PV table.)

Requirement 1:

Calculate the equivalent annual cost for new and old machine. Assume inflation is 0%. (Round "PV Factor" to 3 decimal places and final answers to the nearest dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.)

	Equivalent annual cost
New machine	$
Old machine	$

Requirement 2:

Which machine should United Automation sell?

(Click to select) New machine Old machine