Reference no: EM13771367
A company currently has a machine (defender) which was purchased 9 years ago at a cost of $70,000 and an expected annual operating cost of $ 16,000. It was expected to last 15 years with a salvage value of $ 18,000.
However the market has changed. The current market value of the machine is $ 8,000, with the operating cost still at $ 16,000. It salvage at the end of the next 6 years will only be $ 2,000.
The company now has a challenger which will cost $ 42,000 today, with annual operating cost of $ 5,000 and a $ 11,000 salvage at the end of its 14 year life.
Which alternative should be chosen, the defender or the challenger? MARR = 15%
a. Draw the cash flow diagrams. For the defender, cross out the sunk costs.
b. Analyze the defender (new) v. the challenger by the annual cost method.
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Defender v. the challenger by the annual cost method
: A company currently has a machine (defender) which was purchased 9 years ago at a cost of $70,000 and an expected annual operating cost of $ 16,000. It was expected to last 15 years with a salvage value of $ 18,000. Analyze the defender (new) v. the ..
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