Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 40

A crushing machine that is a basic component of a metal recycling operation is wearing out faster than expected. The machine was purchased 2 years ago for $400,000. At that time, the buyer thought the machine would serve its needs for at least 5 years, at which time the machine would be sold to a smaller independent recycler for $80,000. Now, however, the company thinks the market value of the diminished machine is only $50,000. If it is kept, the machine's operating cost will be $37,000 per year for the next 2 years, after which it will be scrapped for $1000. If it is kept for only 1 year, the market value is estimated to be $10,000. Alternatively, the company can outsource the process now for a fixed cost of $56,000 per year. At an interest rate of 10% per year, should the company continue with the current machine or outsource the process