Problem

ACME Corporation is investigating replacement of a punch press they bought two years ago for $48,000. Another company is willing to buy the press for $30,000. If the press is not sold, it will have an operating profit of $50,000 for this year, decreasing by $2,000 each year thereafter. Its resale value is estimated to be $25,000 by the end of this year, decreasing by $1,000 each year thereafter. A new press can be bought for $60,000. Its operating profit is $65,000 the first year, decreasing by $5,000 each year after that. Its resale value at the end of the first year is $30,000 and drops by $4,000 per year. The company's MARR is 5%. Analyze this problem for ACME and make clear recommendations with respect to ACME's strategic planning horizon varying from one to four years. Assume that the company operates in a total tax free zone. Show all of your cash flow diagrams and details of any calculations.