Five years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complex parts used in commercial and military aircraft worldwide. It cost $400,000, had an estimated life of 15 years, and O&M costs of $45,000 for the first year, increasing by $1000 per year thereafter. The 5 years have been depreciated for tax purposes as MACRS-GDS 7-year property. The NC machine was originally thought to have a salvage value of $20,000 at the end of 15 years but is now believed to have a remaining life of only 5 years with a salvage value of $15,000 at that time. With business booming, the existing machine is no longer sufficient to meet production needs. It can be kept and supplemented by purchasing a new, smaller Machine S for $190,000 that will cost $40,000 per year for O&M, have a life of 10 years, and have a salvage value of $190,000(0.85t) after t years. As an alternative, a larger, faster, and more capable Machine L can be used alone to replace the current machine. It has a cash price without trade-in of $550,000, O&M costs of $54,000 for the first year, increasing 5% per year thereafter, and a 15-year life. The existing NC machine can be sold on the open market for a maximum of $70,000. The salvage value of Machine L is expected to be $550,000(0.75t) after t years. The after-tax MARR is 12 percent, the tax rate is 40 percent, and the planning horizon is 5 years