A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $88,000 or sold to a smaller company internationally for $50,000. The upgraded machine will have an annual operating cost of $88,000 per year and a $24,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $223,000. Its salvage value will be $56,000 for years 1 through 5: $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45.000 per year. Perform an economic analysis at 11% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years. a) The current machine should be replaced [(Click to select) b) The equivalent AW for the next three years is S[
A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $88,000 or sold to a smaller company internationally for $50,000. The upgraded machine will have an annual operating cost of $88,000 per year and a $24,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $223,000. Its salvage value will be $56,000 for years 1 through 5: $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45.000 per year. Perform an economic analysis at 11% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years. a) The current machine should be replaced [(Click to select) b) The equivalent AW for the next three years is S[
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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