1) To continue to meet its production targets, a company can either sell the existing machine and purchase a new one or

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1) To continue to meet its production targets, a company caneither sell the existing machine andpurchase a new one or upgrade the existing machine.The existing machine has a remaining life of 5 years and isexpected to have a salvage value of $30,000 at theend of its useful life. Operating and maintenance costs have been$37,500 per year. The company uses a MARRof 10% per year compounded annually for making economicdecisions.Alternative 1. A new machine is purchased, and the existing machineis sold at its market value of $75,000. Anew machine costs $225,000, has an annual O&M cost of $22,500,and a salvage value of $35,000 at the endof 5 years.Alternative 2. The existing machine is upgraded, and the upgradesare expected to cost $90,000 now. Theupgraded machine’s salvage value and annual O&M costs areexpected to remain the same as that of the existingmachine.a) Compute the present worth for Alternative 1.b) Compute the present worth for Alternative 2.c) Based on the above calculations, which option would yourecommend? Why?
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