7) (20 points) A manufacturer of drill bits has decided to purchase a new machine because of the increasing repair costs

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7 20 Points A Manufacturer Of Drill Bits Has Decided To Purchase A New Machine Because Of The Increasing Repair Costs 1 (39.6 KiB) Viewed 11 times

7) (20 points) A manufacturer of drill bits has decided to purchase a new machine because of the increasing repair costs for its current machine. The current machine is based on older technology and has negligible market value. The purchase price of the new machine is $1.5 million and it is expected to last for 10 years. Its terminal salvage value is $150,000. Operating and maintenance (O&M) costs are estimated to be $50,000 for the first year. Thereafter, these O&M costs are expected to increase by 5% each year over the previous year's costs. MARR is 10% per year compounded annually. a) (12 points) Compute the present worth for this new equipment purchase. b) (8 points) If the O&M costs for the current machine are expected to be $300,000 per year for the next 10 years, would you support the decision to purchase this new machine? Why or why not?