Question

Your company is considering replacing it primary machine press. Given the following information, how many years must the new machine be operational to justify replacing the old press. Provide your answer to the tenth of a year e.g. 1.5 years.

New Machine Cost: $180,000

Savings per year: $3,500

MARR: 15%

Lifetime (years) 18

Resale value 0

Answer 1

Cost of the new machine is $ 180,000

Also it has no salvage value and annual savings will be 3500.

We will have to find the time period which will be break even for the cost.

Finding future value with interest rate of 15%

3500 * (1.15)^10 = 14159.45

3500 * (1.15)^15 = 28479.71

So the break even time lies between 10 and 15 years

Let's take

3500 * (1.15)^11 = 16283.37

3500 * (1.15)^11.7 = 17957

This approximately very close to our figure.

The machine must be operational for at least 11.7 years.