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A machine was installed 5 years ago. Its market value is now $15,000 and is expected to decline by 10%/year over the next five years. It is projected that this machine will be operational for another five years, after which time it will be scrapped (no salvage value). This year, its annual costs are estimated as $1500, but will increase by $1000/year thereafter.

A new machine is now available for $20,000. It has no annual costs over its five-year minimum cost life (i.e., economic life). Using an 8% MARR, when (if at all) should the existing machine be replaced with the new machine?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91233380

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