The owner of a machine is faced with the alternative of overhauling the present equipment or replacing it with new equipment. The cost of overhauling the existing equipment is $5,000. The present equipment has annual operating and maintenance costs of $5,000. If it is overhauled, the present equipment will last for 5 years more and then be scrapped at zero value. If it is not overhauled, it has a trade-in value of $2,000 toward the new equipment.

New equipment can be purchased for $20,000. At the end of 5 years, the new equipment will have a resale value of $8,000. Annual operating and maintenance costs for the new equipment will be $2,000.

Using a MARR of 8%, what is your recommendation? Use the "Receipts and Disbursements" method. Use present values in your analysis