You Are Considering Replacing Your Current Dado Cutter with a New

question 32

Essay

You are considering replacing your current dado cutter with a new machine. The current machine is expected to last three more years but faces increasing repair costs of $2,500; $3,500; and $4,000 over the three years. You could salvage the machine now for $5,000; and then $3,000; $1,500; and 0 thereafter. The new dado cutter would cost $12,000 and require upkeep of $1,500 a year. The machine would last six years and be salvaged for $1,000. Should you replace the old machine now or wait one year? (Assume the tax rate is 0% and the cost of capital is 11%).

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Definitions:

Chemotherapy

A type of cancer treatment using one or more anti-cancer drugs as part of a standardized chemotherapy regimen to kill or slow the growth of cancer cells.

Cranium

The part of the skull that encloses the brain, consisting of the frontal, parietal, temporal, and occipital bones.

Temporal Bone

A bone of the skull located at the side of the head containing the organs of hearing and balance.

Parietal Bone

A bone forming the central side and upper back part of each side of the skull.