A small manufacturing firm is considering purchasing a new boring machine to modernize one of its production lines. Two types of boring machine are available on the market. The machines are described by the following characteristics:
|
Item
|
Machine A
|
Machine B
|
|
First cost
|
$7,234
|
$8,805
|
|
Service life
|
8 years
|
10 years
|
|
Salvage value
|
$569
|
$1,026
|
|
Annual O&M costs
|
$729
|
$606
|
|
CCA rate
|
30%
|
30%
|
Determine the break-even annual O&M costs for machine A so that the present worth of machine A is the same as that of machine B. Use a MARR (after tax) of 10% and a marginal tax rate of 30%.