A manufacturer of drill bits has decided to purchase a new machine because of the increasing repair costs for its curren
Posted: Sun Jul 03, 2022 6:55 am
A manufacturer of drill bits has decided to purchase a newmachine because of the increasing repair costs for its currentmachine. The current machine is based on older technology and hasnegligible market value. The purchase price of the new machine is$1.5 million and it is expected to last for 10 years. Its terminalsalvage 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 overthe previous year's costs.MARR is 10% per year compounded annually.a) Compute the present worth for this new equipmentpurchase.b) If the O&M costs for the current machine are expectedto be $300,000 per year for the next 10years, would you support the decision to purchase this new machine?Why or why not?