When should you buy the new equipment

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Question - When to replace an asset: You have old equipment for manufacturing company. The old equipment is expected to last for another three years, but you are considering buying a new equipment before the old wears out. The annual maintenance cost is $3.500 per year for the old and $2000 for the new. The price of your new equipment is $15,000 and it is expected to run for 18 years. Your opportunity cost of capital is 5 percent. When should you buy the new equipment? If the annual cost of old is instead $3200 what would be your decision? Show all working in details and justify your reasoning.

Reference no: EM133186703

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