A small manufacturing firm is considering purchasing a new boring machine to modernize one of its production lines. Two types of boring machine are available on the market. The lives of machine A and machine B are 8 years and 10 years, respectively. The machines have the following receipts and disbursements:
Use a MARR (after tax) of 10% and a marginal tax rate of 30%, and answer the following questions:
(a) Which machine would be most economical to purchase under an infinite planning horizon? Explain any assumption that you need to make about future alternatives.
(b) Determine the break-even annual O&M costs for machine A so that the present worth of machine A is the same as that of machine B.
(c) Suppose that the required service life of the machine is only 5 years. The salvage values at the end of the required service period are estimated to be $3,000 for machine A and $3,500 for machine B. Which machine is more economical?
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