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 $1,400 at the end of its 10-year life. Annual operating costs are $1,200. The machine will perform satisfactorily for the next seven years. A salesman for another company is offering Machine B for $54,000 with an market value of $5,400 after 10 years. Annual operating costs will be $800. Machine A could be sold now for $11,000, and MARR is 23% 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 11000 Investment 54000 Years 7 Years 10 Discount Rate 23% Discount Rate 23% Resale 1400 Resale 5400 Maintenance 1200 Maintenance 800 PV Annuity Factor 3.327036 PV Annuity Factor 3.799269986 FV Anuuity Facotr 14.17077 FV Anuuity Facotr 30.11280911 EUAC 4407.451 EUAC 14833.93113 Difference in EUAC Machine B - Machine A = 14833.93-4407.451= 10426.48

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