XTR Ind. received a contract from a pharmaceutical company for supplying plastic

Question

XTR Ind. received a contract from a pharmaceutical company for supplying plastic containers for a four year period commencing on January 1, 2007. XTR Ind. intends to manufacture the containers using an existing, six years old injection molding machine located in the company's Halifax plant. According to an alternative proposal, the six years old machine would be replaced by a more efficient, new machine, and the replacement machine will be used to produce the containers. The cost of the replacement machine is SX, and its salvage value is SY. The salvage value of the old machine is zero. The old machine can either be replaced on January 1,2007 or on January 1, 2008. The (end of year) operating and maintenance costs (O/M) for the two machines are given below: End of year 12 3 4 Old machine, O/M SI 80,000 $240,000 S300.000 S360,000 Replacement machine, O/M $ 40,000 S 40,000 S 40,000 S 40,000 The minimum attractive rate of return (MARRR) for the company is z Determine: the equivalent uniform annual cost if the old machine, is kept, and z = 10 % half yearly compounding. the maximum value of X that would make replacement of the old machine on January 1, 2007 economical if Y=0 and z = 12 % yearly compounding the maximum value of X that would make replacement of the old machine economical on January 1, 2008 if Y=0.2X and z = 15 % yearly compounding

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