Reference no: EM13904006
A firm is considering replacing a machine that has been used drug refining process.
The financial data for the new improved machine is as follows:
Investment cost $27,000 (installed)
A firm is considering replacing a machine that has been used drug refining process.
The financial data for the new improved machine is as follows:
Investment cost $27,000 (installed)
Estimated useful life of 5 years
Salvage value of $16,500 after the first year, decreasing at a rate of 12% each year.
Operating and maintenance costs are expected to be $2,375 in the first year increasing at a rate of 45% each year.
The financial data for the existing machine is as follows:
Investment cost $25,000 (installed), 2 years ago
Estimated useful life of 7 years from time of purchase
Salvage value of $5,200 after the first year (from today), decreasing at a rate of 12% each year.
Current market value of $13,700
Operating and maintenance costs for the next 5 years are expected to be $2,750 in the first year increasing at a rate of 60% each year.
With a MARR of 15%, calculate the following:
a. Calculate the economic service life for each option.
b. What are your conclusions?
c. When should the defender be replaced? What are your final conclusions?
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