A five-year-old defender has a current marketvalue of $4,000 and expected O&M costs of $3,000this year, increasing by $1,500 per year. Future market values are expected to decline by $1,000 per year.The machine can be used for another three years.The challenger costs $6,000 and has O&M costs of$2,000 per year, increasing by $1,000 per year. Themachine will be needed for only three years, and thesalvage value at the end of that time is expected to be$2,000. The MARR is 15%.(a) Determine the annual cash flows for retainingthe old machine for three years.(b) Determine whether now is the time to replace theold machine. First show the annual cash flowsfor the challenger.
A five-year-old defender has a current market
value of $4,000 and expected O&M costs of $3,000
this year, increasing by $1,500 per year. Future market values are expected to decline by $1,000 per year.
The machine can be used for another three years.
The challenger costs $6,000 and has O&M costs of
$2,000 per year, increasing by $1,000 per year. The
machine will be needed for only three years, and the
salvage value at the end of that time is expected to be
$2,000. The MARR is 15%.
(a) Determine the annual
the old machine for three years.
(b) Determine whether now is the time to replace the
old machine. First show the annual cash flows
for the challenger.
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