Consider Problem 13-29 involving Thomas Martin. When, if at all, should the old machinery be replaced with the new, given the following changes in the data. The old machine retains only 70% of its value in the market from year to year. The yearly costs of the old machine were $3000 in Year 1 and increase at 10% thereafter.
Problem 13-29
Five years ago, Thomas Martin installed production machinery that had a first cost of $25,000. At that time initial yearly costs were estimated at $1250 increasing by $500 each year. The market value of this machinery each year would be 90% of the previous year's value. There is a new machine available now that has a first cost of $27,900 and no yearly costs over its 5-year minimum cost life. If Thomas Martin uses an 8% before-tax MARR, when, if at all, should he replace the existing machinery with the new unit?