A proposed investment consists of constructing building, purchasing production machinery, as well as operating for 20 years its first cost is $250,000 with salvage value $50,000. As the maximum life of the machinery is 12 years, it will be essential to renew the machinery once during the 20 years. The first cost of the machinery is $132,000 as well as its salvage value is $132,000/(age, years). Explain the annual income is less the operating expense is expected to be $50,000. Annual interest is six percent compounded annually.
a. While is the most favorable time to replace the machinery?
b. Evaluate the present worth of the profit if the machinery is replaced at the time indicated by part (a)