The PARC Company, a large profitable corporation, has decided to purchase a new widget machine. The following cost data concerning the widget machine have been provided. First cost = $3,156,000. Salvage value = $119,000. Life = 10 Years. Annual benefits = $885,000. Annual OM&R Costs = $97,700. PARC has been advised to consider at least two separate alternatives:
1) Direct purchase the machine with internally generated funds. Under these conditions, PARC uses MACRS depreciation method for capital recovery. This particular project has a depreciation life of six years. PARC uses a MARR of 12% for all analysis.
2) PARC can decide to take out a loan for 35% of the first cost. The loan will have an interest rate of 12% and consists of eight annual payments. All other considerations are the same as in 1) above.