Because of a large increase in demand, Outwest Drillpress was considering expanding its automatic precision drilling operation, for which it charges its customers $50 per hour. The process was automatic except for setting up the controls, placing the part in a jig, and removing it after drilling. Outwest officials were surprised to find that the cost of this type of equipment had doubled since they had purchased the original machine. The precision driller now cost $189,000, including a $9,000 installation charge. Maintenance on the present machine totalled $4,500 per year, and electricity cost $1 per hour. Any new equipment would incur similar expenses. With operator wages costing $30 per hour and a 6,000-hour lifespan on the machine, the company was not sure if it should expand.
As a consultant to Outwest, would you advise the firm to purchase the new machine?
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