Problem
A manufacturing engineer is considering whether to repair or replace a broken machine. The first alternative (Alternative "A") is to repair the machine with an initial cost of $15,000, an annual maintenance of $700 per year, with no salvage value at the end of its five-year useful life. The second alternative (Alternative "B") is to replace the machine for $30,000. The maintenance cost starts in the second year at $200 and increases $200 per year in all subsequent years. There is an anticipated salvage value of $5,000 at the end of 20 years. Assuming interest rate is 6% and an analysis period of 20 years, what would be the preferable alternative?