Question

It is necessary to pump twice as much water as can be handled by an existing small pump, which is now 5 years old. This pump can be sold now for $1200 or kept for 5 years, after which it will have zero salvage value. Operating expenses are $2500 per year.

If the pump is kept, a similar extra one must be purchased for $3500, with operating costs of $2000 per year; its salvage values after 5 and 10 years are the same as for the original (existing) pump.

A large pump, equal in capacity to two of the smaller pumps, costs $6200, with operating expenses of $4200 per year.

New machines have economic lives of 10 years with 1800 and zero salvage values at year 5 and year 10 respectively. Determine the best course of action if the MARR is 10%?

Answer 1