A machine that produces a certain piece must be turned off by the operator after each piece is completed. The machine "coasts" for 15 seconds after it is turned off, thus are preventing the operator from removing the piece quickly before forming the next piece. An engineer has suggested installing a brake that would reduce coasting time to 3 seconds.
The machine forms the 50,000 pieces a year. The time to form 1 piece is 1 minute 45 seconds, excluding coasting time. The operator earns $13 an hour and the other direct costs for operating machine are $4 an hour. The brake will need the servicing every 553 hours of operation. It will take the operator 30 minutes to perform essential maintenance and will need the $50 in parts and the material. The brake is expected to last 7,500 hours of operation and will have no salvage value.
Discuss how much could be spent for the brake if the Minimum Attractive Rate of Return is 10% compounded annually?