Question
Five years ago, Thomas Martin installed production machinery that had a first cost of $25,000. At that time initial yearly costs were estimated at $1,250,
Five years ago, Thomas Martin installed production machinery that had a first cost of $25,000. At that time initial yearly costs were estimated at $1,250, increasing by $500 each year. The market value of this machinery each year would be 90% of the previous years value. There is a new machine available now that has a first cost of $27,900 and no yearly costs over its five-year minimum cost life. If Thomas Martin uses an 8% before-tax MARR, when, if at all, should he replace the existing machinery with the new unit?
A.) replace immediately
B.) replace at the end of the 2nd year
C.) replace at the end of the 3rd year
D.) Do not replace the defender
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