Reference no: EM131529684

A lumber company that cuts fine woods for cabinetry is evaluating if it should retain the current bleaching system or replace it with the new one. The relevant costs of each system are known or estimated.

Current System New System

First Cost seven years ago, $ 450,000

First Cost, $ 700,000

Remaining Life, years 5 10

Current market value, $ 50,000

Annual Operating Costs, $/year 160,000 150,000

Future Salvage, $ - 50,000

Use an interest rate of 10% per year to

a) Perform the replacement analysis and

b) Determine the minimum resale price needed to make the challenger replacement choice now