A replacement machine costs $3,000, incurs $20 of annual maintenance, lasts six years and has a $1,200 terminal resale value. Use a 10% discount rate. The old machine’s resale value today is $900; its next four resale values are $850, $775, $700 and $600. Its corresponding annual maintenance costs are $200, $275, $325 and $450.
- A.Calculate the equivalent annual cost of the new machine.
- B.Determine when the old machine should be replaced.