Instructions

Make decisions that are best for your company. You use 10% to evaluate things unless told or it makes more sense to use a different value. (Put your answer in this format: if its over $1M: 1,000,001. If its over $100,000 then 100,001. Etc. E.g., if your answer is $2,345,466.43 then you put "2,345,466" - no $ or decimals, e.g., $754,231.12 then you would enter 754,231.)

Question

3XT2 purchased a specialized mixer three years ago for $25K. This machine is not readily salable and is assumed to have a zero salvage value. Operating costs are expected to be $10K next year, and to increase by $800 per year thereafter. The company has an opportunity to replace the existing machine with another one that will cost $12K. This machine has no salvage value, a useful life of 10 years, and operating costs of $5K in the first year, with an annual increase of $1200 thereafter. If the MARR is 15%, should the company replace the old machine with the new one?