Contemplating replacing-use the opportunity cost

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Reference no: EM13882150

Fluid Dynamics Company owns a pump that it is contemplating replacing. The old pump has annual operating and maintenance costs of $8,000/year: it can be kept for 4 years more and will have a zero salvage value at that time.

The old pump can be traded in on a new pump. The trade-in value is $4,000. The new pump will cost $18,000 and have a value of $9,000 in 4 years and will have annual operating and maintenance costs of $4,500/year.

Using a MARR of 10%, evaluate the investment alternative based upon the present worth method and a planning horizon of 4 years.

Use the opportunity cost approach.

Reference no: EM13882150

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