Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in that environment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88,000, and its operating cost for the next year is expected to be $49,000. A more corrosion-resistant challenger will cost $206,000 with an operating cost of $46,000 per year. It is expected to have a $50,000 salvage value after its 10-year ESL. At an interest rate of 8% per year, what minimum replacement value would render the challenger attractive?
The minimum replacement value that would render the challenger attractive is $ .
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- Typically, there are two alternatives in a replacement analysis. One alternative is to replace the defender now. The other alternative is which of the following? A. Keep the defender for its remaining useful life.B Keep the defender for another year and then reexamine the situation. C Keep the defender until an improved challenger better than the current challenger comes to marketD. Keep the defender as long as it’s operational.arrow_forwardAn existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates have been developed for both the defender and the challenger. Defender Challenger Current MV…arrow_forwardA material handling system was purchased 3 years ago for $116,866. Two years ago it required substantial upgrading at a cost of $13,319. It once again is requiring an upgrading cost of $26,056. Alternately, a new system can be purchased today at a cost of $218,589, with a salvage value of $21,003. The existing machine could be sold today for $48,133. In an economic replacement analysis, what first cost should be assigned to the existing system?arrow_forward
- A machine that cost $120,000 3 years ago can be sold now for $51,500. Its market value is expected to be $40,000 and $20,000 1 year and 2 years from now, respectively. Its operating cost was $18,000 for the first 3 years of its life, but the M&O cost is expected to be $23,000 for the next 2 years. A new improved machine that can be purchased for $135,500 will have an economic life of 5 years, and an operating cost of $9,000 per year, and a salvage value of $32,000 whenever it is replaced. At an interest rate of 10% per year, determine if the presently owned machine should be replaced now, 1 year from now, or 2 years from now. The annual worth of the existing machine one year from now is $- 50500 O. the annual worth of the existing machine two years from now is $- 30,500 . and the annual worth of the new machine is $-112,500 The presently owned machine should be replaced now 13arrow_forwardHow can the economic life of the challenger be determined?arrow_forwardA critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year. Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-55,000 over its ESL. Use a MARR of 10% per year and annual worth analysis to determine when the company should replace the machine. The AW value of the challenger is $- and the AW value of the defender at the end of year 2 is $- The company should replace the machine (Click to select)arrow_forward
- 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 $81,000 or sold to a smaller company Internationally for $42000. The upgraded machine will have an annual operating cost of $87,000 per year and a $32,000 salvage value in 3 years. If upgraded, the presently owned machine will be retalned 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 $217,000. Its salvage value will be $52.000 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 14% 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 equlvalent AW for the next three years. a) The…arrow_forwardRubber: Initial investment: $132,000 Annual cost: $43,000 Annual revenue: $100,000 Salvage value: $11,000 Useful life: 10 years Using the cotermination assumptions, a study period of 6 years, and a MARR of 9%, what is the present worth of the rubber alternative? Assume that the rubber alternative's equipment has a market value of $17,000 at the end of Year 6. Typed numeric answer will be automatically saved.arrow_forwardThe beautiful expert Hand written solution is not allowed.arrow_forward
- Define replacement analysisarrow_forwardPart a.) An engineer with Calahan Technologies calculated the AW of cost values shown for a presently owned machine using estimates she obtained from the vendor and company records. A challenger has an economic service life of 7 years with an AW of $-86,000 per year. Assume that all future costs remain as estimated and the challenger's technology will definitely replace that of the defender within 5 years. When should the company purchase the challenger? Retention Period, Years AW of Costs, $ per Year -92,000 2 -81,000 -87,000 4 -89,000 5 -95,000 Part b.) The costs and revenue projections for a new product made on the machine from Part a.) are estimated below. What is the estimated profit at a production rate of 25% above breakeven? Fixed cost = $592,000 per year Production cost per unit = $198 Revenue per unit = $330arrow_forwardA 5 year-old tooling kit that was purchased new for $9000 has a current market value of $4000 and expected 0&M costs of $3000, increasing by $1200 per year. Future market values are expected to decline by 25% annually (going forward). The kit can be used for another 3 years at most. The optimal replacement kit costs $8000 and has 0&M costs starting at $2500 per year, increasing by $2000 per year. Salvage value for the new kit at the end of the first year is $4000 and falls by $1000 per year thereafter (until zero). The new model kit will be needed indefinitely. Assume a unique minimum AEC~(15%) for both kits (both the current and replacement kit). The MARR is 15%. 1) What is the AECC• ? a) Less than 6925.70 b) 6925.70-6945.70 c) 6945.70-6965.70 ) d) 6965.70-6985.70 e) More than 6985.70arrow_forward
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