A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year. Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-44,000 over its ESL. Use a MARR of 10% per year and annual worth analysis to determine when the company should replace the machine. The AW value of the challenger is $-| and the AW value of the defender at the end of year 2 is $-| The company should replace the machine (Click to select) ☑
A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year. Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-44,000 over its ESL. Use a MARR of 10% per year and annual worth analysis to determine when the company should replace the machine. The AW value of the challenger is $-| and the AW value of the defender at the end of year 2 is $-| The company should replace the machine (Click to select) ☑
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study
was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value
of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to
make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year.
Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-44,000 over its ESL. Use a MARR of
10% per year and annual worth analysis to determine when the company should replace the machine.
The AW value of the challenger is $- [
and the AW value of the defender at the end of year 2 is $-[
The company should replace the machine (Click to select)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F135bea0e-c5fb-49a8-84d0-186f49422607%2F61fe9a64-f755-4e18-b86c-a5da448e9afb%2Fsay64b_processed.png&w=3840&q=75)
Transcribed Image Text:A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study
was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value
of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to
make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year.
Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-44,000 over its ESL. Use a MARR of
10% per year and annual worth analysis to determine when the company should replace the machine.
The AW value of the challenger is $- [
and the AW value of the defender at the end of year 2 is $-[
The company should replace the machine (Click to select)
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education