You own a survey total station which you purchased last mont

You own a survey total station which you purchased last month for $10,000. It has an estimated useful life of 10 years with no salvage value. It is currently worth $1,000 for resale because there is a new model with improved features and operating productivity and same useful life, at $15,000. Survey crew productivity savings per year are $4,000. Should you replace your current total station with the new model now, given your MARR is 8%?

Solution

Cost of old station is already incurred and is therefore it should not be considered as it is sunk cost. Remaining life of old machine is 9 Years Annual savings 4000 Resale value 1000 Purchase price of new machine 15000 MARR 8% Life of new machine 10 Years Years Cashflow PV Factor @ 8% PV of cash flows 0 -15000 1 -15000 0 1000 1 1000 1 4000 0.925926 3703.704 2 4000 0.857339 3429.355 3 4000 0.793832 3175.329 4 4000 0.73503 2940.119 5 4000 0.680583 2722.333 6 4000 0.63017 2520.679 7 4000 0.58349 2333.962 8 4000 0.540269 2161.076 9 4000 0.500249 2000.996 10 4000 0.463193 1852.774 12840.33 NPV of buying new machine = 12840.33 As the PV is positive new machine should be purchased. Please provide feedback…. Thanks in advance…. :-)