It is necessary to pump twice as muchwater as can be handled by an existing small pump, which is now 5years 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 extraone must be purchased for $3500, with operating costs of $2000 peryear; its salvage values after 5 and 10 years are the same as forthe original (existing) pump.
A large pump, equal in capacity totwo of the smaller pumps, costs $6200, with operating expenses of$4200 per year.
New machines have economic lives of10 years with 1800 and zero salvage values at year 5 and year 10respectively. Determine the best course of action if the MARR is10%.
