Machine A was purchased three years ago for $10,000 and had an estimated market

Question

Machine A was purchased three years ago for $10,000 and had an estimated market value of $1,000 at the end of its 10-year life. Annual operating costs are $1,000. The machine will perform satisfactorily for the next seven years. A salesman for another company is offering Machine B for $50,000 with an market value of $5,000 after 10 years. Annual operating costs will be $600. Machine A could be sold now for $7,000, and MARR is 9% per year. Using the outsider viewpoint, what is the difference in the equivalent uniform annual cost (EUAC) of buying Machine B compared to continuing to use Machine A; i.e., EUAC(Machine B)

Explanation / Answer

Machine A Machine B Investment 7000 Investment 50000 Years 7 Years 10 Discout Rate 9% Discout Rate 9% Resale 1000 Resale 5000 Maintenace 1000 Maintenance 600 PV Annuity Factor 5.032953 PV Annuity Factor 6.417658 FV Annuity Factor 9.200435 FV Annuity Factor 15.19293 EUAC 2282.143 EUAC 8061.904 Difference in EUAC = 8061.904 - 2282.143= 5779.761

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