The UB Machine Shop is considering purchasing a new state-of-the-art lathe to support student projects and faculty research projects. They anticipate needing this equipment for the next 10 years. You have identified two different models.
Option 1: The Tornmach Lathe, which has a useful life of 10 years, will cost $32,000. Annual operating cost (O&M) will cost $18,000 per year. Salvage value, at the end of the lathe's useful life, is estimated to be $10,000.
Option 2: The Knuth Machine Tools Lathe is slightly more expensive with a purchase cost of $39,000 but has an estimated useful life of 14 years. Operating and maintenance costs (O&M) are estimated to be $16,700 per year. At the end of its useful life, the estimated salvage value of the lathe is $9,000.
If your company's MARR = 12%, what should the salvage value of the Knuth lathe option be at the end of 10 years, to make the UB machine shop indifferent between the two models?
How would you solve it without Excel? Just using the formula of PW to get the salvage value.