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A defender and a challenger are considered in a replacement analysis. The following decision tree includes the data where FC: first cost, AB: annual benefit; C: Challenger and D: Defender. If annual compound interest rate is 10%, when must we replace the defender? Node no branch Cash flow FC=-45,000 $ Life=20 yrs AB= +8,500 $ 1 10 FC=-10,000 $ Life=5 yrs 2 D AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,500 $ 2 1D FC=-35,000 $ Life=15 yrs AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,000 $ FC=-25,000 $ Life=10 yrs AB= +9,000 $ 20 1D 20 FC=-20,000 $ Life=5 yrs 4 10 AB= +6,000 $ FC=-15,000 $ Life=5 yrs AB= +5,000 $ 2D 3.

A defender and a challenger are considered in a replacement analysis. The following decision tree includes the data where FC: first cost, AB: annual benefit; C: Challenger and D: Defender. If annual compound interest rate is 10%, when must we replace the defender? Node no branch Cash flow FC=-45,000 $ Life=20 yrs AB= +8,500 $ 1 10 FC=-10,000 $ Life=5 yrs 2 D AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,500 $ 2 1D FC=-35,000 $ Life=15 yrs AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,000 $ FC=-25,000 $ Life=10 yrs AB= +9,000 $ 20 1D 20 FC=-20,000 $ Life=5 yrs 4 10 AB= +6,000 $ FC=-15,000 $ Life=5 yrs AB= +5,000 $ 2D 3.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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QUESTION-1 A defender and a challenger are considered in a replacement analysis. The following decision tree includes the data where FC: first cost, AB: annual benefit; C: Challenger and D: Defender. If annual compound interest rate is 10%, when must we replace the defender? Node no branch Cash flow FC=-45,000 $ Life=20 yrs AB= +8,500 $ 1 10 FC=-10,000 $ Life=5 yrs AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,500 $ FC=-35,000 $ Life=15 yrs 2 D 2 1D 20 AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,000 $ FC=-25,000 $ Life=10 yrs AB= +9,000 $ FC=-20,000 $ Life=5 yrs 1D 20 4 10 AB= +6,000 $ FC=-15,000 $ Life=5 yrs 2 D AB= +5,000 $ 3.
Transcribed Image Text:QUESTION-1 A defender and a challenger are considered in a replacement analysis. The following decision tree includes the data where FC: first cost, AB: annual benefit; C: Challenger and D: Defender. If annual compound interest rate is 10%, when must we replace the defender? Node no branch Cash flow FC=-45,000 $ Life=20 yrs AB= +8,500 $ 1 10 FC=-10,000 $ Life=5 yrs AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,500 $ FC=-35,000 $ Life=15 yrs 2 D 2 1D 20 AB= +4,500 $ FC=-10,000 $ Life=5 yrs AB= +5,000 $ FC=-25,000 $ Life=10 yrs AB= +9,000 $ FC=-20,000 $ Life=5 yrs 1D 20 4 10 AB= +6,000 $ FC=-15,000 $ Life=5 yrs 2 D AB= +5,000 $ 3.
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