Question - A CNC lathe, used in a production process, requires major repair. The machine could either be completely overhauled (repaired) for SX or replaced by a new machine for $1,100,000. MARR (the minimum attractive rate of return) is 10 %. The lathe is required for 5 additional years. The O/M (operating and maintenance) costs and the salvage values for both (existing and new) machines are given below:
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End of year
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1
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2
|
3
|
4
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5
|
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Existing machine:
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|
|
|
|
|
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O/M cost, $/year
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140,000
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140,000
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140,000
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320,000
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140,000
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Salvage value, $
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0
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0
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0
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0
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0
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New machine:
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|
|
|
|
|
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O/M cost, $/year
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55,000
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55,000
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115,000
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55,000
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55,000
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Salvage value, $
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900,000
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760,000
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430,000
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200,000
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65,000
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Determine:
a) the equivalent uniform annual cost of keeping (repairing and using) the existing machine if X = 470,000.
b) the range of values of X for which repair would be preferred.
c) the yearly saving if the machine is replaced and X = 710,000.
d) the internal rate of return of this Project if the machine is replaced and X = 750,000.