Smashn has an ageing piece of equipment which is less efficient than more modern equivalents. This equipment will continue to operate for another 15 years but operating and maintenance costs will be NOK35,000 per year. Alternatively, it could be sold, raising NOK20,000 now and replace with its modern equivalent which costs NOK 70,000 but has reduced operating and maintenance costs at NOK 30,000 per year. This machine could be sold at the end of its 15-year life for scrap for NOK 5,000. The third possibility is to spend NOK 25,000 for an immediate overhaul of the old machine which will improve its efficiency for the rest of its life, so that operating and maintenance costs become NOK 32,000 per annum. The old machine will have a zero scrap value in 15 years, whether or not it is overhauled. Smashn requires a return of 9% on projects in this risk class. What is the best course of action? Assume that cash flows arise at the year ends.

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