Question: Company PDQ decides that its four-year old milling machine, which has a market value of $350,000, is 50% too small for its future needs. A new machine with the same production capacity as the existing machine costs $500,000 installed. The existing machine will have annual operating expenses of $400,000 per year for the next six years and will have a salvage value of $70,000. The new machine will have annual operating expenses of $350,000 per year for the next six years, and will have a salvage value of $100,000. Alternatively, a new double-capacity machine is available on the market. Its installed cost is $1,550,000 and its annual operating costs will be $600,000 per year for the next six years. The salvage value at that time will be $200,000. If the MARR (hurdle rate) is 10%, which machine should be purchased?

Price: $2.99

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