The company you work for purchased a textile processing machine 3 years ago for $177,400 You are considering upgrading the machine to increase its capacity. To increase capacity you must provide a $58,000 upgrade to this existing machine. The market value of the existing machine today and into the future is shown in the table below. Also shown in the table below is the expected operating costs for the existing machine. You have been asked to consider purchasing a new machine instead of upgrading the existing machine. The purchase price of the new machine is $220,000 The market values and operating costs of the new machine is show in the table below. You manager has stated that a 3 year supply contract has been secured with a customer. Your manager has asked you to perform a financial analysis to determine whether or not to keep the existing machine or buy a new one. Your manager has specifically stated that she is only interested in 3 year planning horizon, and does not want to consider changing the equipment after the contract has started. Should you keep the existing machine or purchase the proposed new machine? MARR = 15% IT Year 0 1 2 3 4 5 6 7 8 9 10 Proposed Machine Annual Worth Market Value Operating Cost $220,000 $60,000 $198,000 $60,000 $178,000 $60,000 $160,000 $60,000 $144,000 $60,000 $130,000 $60,000 $117,000 $60,000 $105,000 $60,000 $95,000 $60,000 $86,000 $60,000 $77,000 $60,000 Existing Machine Annual Worth Market Value Operating Cost $133,300 $48,927 $120,000 $48,927 $108,000 $48,927 $97,000 $48,927 $87,000 $48,927 $78,000 $48,927 $70,000 $48,927 $63,000 $48,927 $57,000 $48,927 $51,000 $48,927 $46,000 $48,927 HOY 42 The company you work for purchased a textile processing machine 3 years ago for $177,400 You are considering upgrading the machine to increase its capacity. To increase capacity you must provide a $58,000 upgrade to this existing machine. The market value of the existing machine today and into the future is shown in the table below. Also shown in the table below is the expected operating costs for the existing machine. You have been asked to consider purchasing a new machine instead of upgrading the existing machine. The purchase price of the new machine is $220,000 The market values and operating costs of the new machine is show in the table below. You manager has stated that a 3 year supply contract has been secured with a customer. Your manager has asked you to perform a financial analysis to determine whether or not to keep the existing machine or buy a new one. Your manager has specifically stated that she is only interested in 3 year planning horizon, and does not want to consider changing the equipment after the contract has started. Should you keep the existing machine or purchase the proposed new machine? MARR = 15% IT Year 0 1 2 3 4 5 6 7 8 9 10 Proposed Machine Annual Worth Market Value Operating Cost $220,000 $60,000 $198,000 $60,000 $178,000 $60,000 $160,000 $60,000 $144,000 $60,000 $130,000 $60,000 $117,000 $60,000 $105,000 $60,000 $95,000 $60,000 $86,000 $60,000 $77,000 $60,000 Existing Machine Annual Worth Market Value Operating Cost $133,300 $48,927 $120,000 $48,927 $108,000 $48,927 $97,000 $48,927 $87,000 $48,927 $78,000 $48,927 $70,000 $48,927 $63,000 $48,927 $57,000 $48,927 $51,000 $48,927 $46,000 $48,927 HOY 42
