Question

An operations manager is considering replacing one of the CNC machines that she has in her plant. The currently owned machine can be used for three more years. The machine has a yearly maintenance cost of $15,000, operating cost of $31,000/year, and salvage value of $9000 after three years. There are two estimates for year 0 market value for the current machine: $10,000 and $20,000. A new CNC machine would cost $80,000, with an operating cost of $19,000, and a $10,000 salvage value after 3 years. If the interest rate is 12% per year conduct a replacement study for these two machines. Make sure to include the two estimates of the year 0 market value of the current machine. 4-

Answer 1

Current machine Cash Reblow 3100014 1000 / year prof cor 31000 x 21402 - 54462 Cash aufflow 15000 year profco = 15000 X 2.402 = 36030 SV = 9000 PV of SV = 9000 x.712² 6408 [ #4462+36030 104084 6408) - 4 o prof Cash Patterns Replace mul value I = 10000 oufflow. Pofal cost K = ( 44840 +10000) - bepercupo 54840 mus.value & - 20000 Total cost RRR = (44840 +20000) - 64840 New machine Casa dapea - Cost = (-80000 PV operating cost = 19000 42.402-45638 PV of salvage = 10000 x 1712 = 7120 Total cost = (80000 +45638-7120) = 118518 The cost of the current machine for the next three years, is less than the new machine,