5 years ago, a multi-axis NC machine was purchased for theexpress purpose of machining large, complex parts used incommercial and military aircraft worldwide. It cost $350,000, hadan estimated life of 15 years, and O&M costs of $50,000 peryear. It was originally thought to have a salvage value of $20,000at the end of 15 years but is now believed to have a remaining lifeof 5 years with no salvage value at that time. With businessbooming, the existing machine is no longer sufficient to meetproduction needs. It can be kept and supplemented by purchasing anew, smaller Machine S for $190,000 that will cost $38,000 per yearfor O&M, have a life of 10 years, and salvage value of$190,000(0.8t) after t years. As an alternative, alarger, faster, and more capable Machine L can be used alone toreplace the current machine. It has cash price without trade-in of$420,000, O&M costs of $74,000 per year, salvage value of$420,000(0.8t) after t years, and a 15 year life. Thepresent machine can be sold on open market for a maximum of$70,000, MARR is 15%, and the planning horizon is 5 years.
a. Clearly show the cash flow profile for each alternative usinga cash flow approach (insider’s viewpoint approach). Provide cashflow for year t=0, 3 and 5.
b. Using an EUAC and a cash flow approach (insider’s viewpointapproach), decide which is the more favorable alternative.
c. Using an EUAC comparison and an opportunity cost approach(outsider’s viewpoint approach), decide which is the more favorablealternative.
d. Using an EUAC comparison and an opportunity cost approach(outsider’s viewpoint approach), decide which is the more favorablealternative.
