You Are Considering Replacing Your Current Dado Cutter with a New

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%).