Eight years ago, a firm purchased a lathe for $45,000. The operating expenses for the lathe are $8,700 per year.
An equipment vendor offers the firm a new machine for $53,500. An allowance of $8,500 would be made for the
old machine on the purchase of the new one. The old machine is expected to be scrapped at the end of five
years.
The new machine's economic service life is five years, with a salvage value of $12,000. The new machine's O&M
cost is estimated to be $4,200 for the first year, increasing at an annual rate of $500 thereafter. The firm's MARR
is 12%. Which option would you recommend?

Question

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The Answer of Eight years ago, a firm purchased a lathe for $45,000. The operating expenses for the lathe are $8,700 per year.
An equipment vendor offers the firm a new machine for $53,500. An allowance of $8,500 would be made for the
old machine on the purchase of the new one. The old machine is expected to be scrapped at the end of five
years.
The new machine's economic service life is five years, with a salvage value of $12,000. The new machine's O&M
cost is estimated to be $4,200 for the first year, increasing at an annual rate of $500 thereafter. The firm's MARR
is 12%. Which option would you recommend?

Eight Years Ago, a Firm Purchased a Lathe for $45,000