The equivalent annual worth of the process currently used in manufacturing motion controllers is AW = $-62,000 per year. A replacement process is under consideration that will have a first cost of $64,000 and an operating cost of $38,000 per year for the next 3 years. Three different engineers have given their opinion about what the salvage value of the new process will be 3 years from now as follows: $10,000, $13,000, and $18,000. Is the decision to replace the process sensitive to the salvage value estimates at the company’s MARR of 15% per year?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
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The equivalent annual worth of the process currently used in manufacturing motion controllers is AW = $-62,000 per year. A replacement process is under consideration that will have a first cost of $64,000 and an operating cost of $38,000 per year for the next 3 years. Three different engineers have given their opinion about what the salvage value of the new process will be 3 years from now as follows: $10,000, $13,000, and $18,000. Is the decision to replace the process sensitive to the salvage value estimates at the company’s MARR of 15% per year?

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