Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 6

Your company needs a machine for the next seven years, and you have two choices (assume an annual interest rate of 15%).
• Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful life of seven years and a salvage value of $15,000.
• Machine B costs $150,000 and has an annual operating cost of $30,000. Machine B has a useful life of five years and no salvage value. However, the life of Machine B can be extended by two years with a certain amount of investment. If Machine B's life is extended, it will still cost $30,000 annually to operate and still have no salvage value.
What would you pay at the end of year 5 to extend the life of Machine B by two years