Determine when the company should replace the machine

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Reference no: EM132047213

Searching for ways to cut costs and increase profit, one of the industrial engineers at Home Comfort Furniture Manufacturers, Inc. determined that the equivalent annual worth of an existing machine over its remaining useful life of 2 years is $-66,000 per year. The IE also determined that used machines like the one currently in use are not available any longer, but the defender can be replaced with a challenger that is more advanced. It will have an AW of $-75,550 if it is kept for 2 years or less, $-70,575 if it is kept between 3 and 4 years, and $?65,000 if it is kept for 5 to 10 years. If the company uses a specified 3-year planning horizon and an interest rate of 10% per year.

a) Determine when the company should replace the machine.

Replace now with challenger for all three years

Keep the machine for 2 years and then relpace with the challenger

b) Determine the AW for the next 3 years.

The AW for the next 3 years is $____

Reference no: EM132047213

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