A five-year-old defender has a current market value of $4,500 and expected O&M costs of $3,000 this year, increasing by $1,400 per year. Future market values are expected to decline by $800 per year. The machine can be used for another three years. The challenger costs $9,000 and has O&M costs of $1,800 per year, increasing by $900 per year. The machine will be needed for only three years, and the salvage value at the end of that time is expected to be $2,200. The MARR is 11%. Click the icon to view the interest factors for discrete compounding when MARR = 11% per year. (a) Determine the annual cash flows for retaining the old machine for three years. Fill in the table below. (Round to the nearest dollar.) Cash Flows (Defender) Period 0 1 2 3 $ (b) Determine whether now is the time to replace the old machine. First show the annual cash flows for the challenger. Fill in the table below. (Round to the nearest dollar.) Cash Flows (Challenger) O Yes O No Period 0 1 2 3 The equivalent annual cost (AEC) of retaining the machine is $. (Round to the nearest dollar.) The equivalent annual cost (AEC) of replacing the machine is $ . (Round to the nearest dollar.) Should the company replace the old machine now? Choose the correct answer below. S $
A five-year-old defender has a current market value of $4,500 and expected O&M costs of $3,000 this year, increasing by $1,400 per year. Future market values are expected to decline by $800 per year. The machine can be used for another three years. The challenger costs $9,000 and has O&M costs of $1,800 per year, increasing by $900 per year. The machine will be needed for only three years, and the salvage value at the end of that time is expected to be $2,200. The MARR is 11%. Click the icon to view the interest factors for discrete compounding when MARR = 11% per year. (a) Determine the annual cash flows for retaining the old machine for three years. Fill in the table below. (Round to the nearest dollar.) Cash Flows (Defender) Period 0 1 2 3 $ (b) Determine whether now is the time to replace the old machine. First show the annual cash flows for the challenger. Fill in the table below. (Round to the nearest dollar.) Cash Flows (Challenger) O Yes O No Period 0 1 2 3 The equivalent annual cost (AEC) of retaining the machine is $. (Round to the nearest dollar.) The equivalent annual cost (AEC) of replacing the machine is $ . (Round to the nearest dollar.) Should the company replace the old machine now? Choose the correct answer below. S $
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 4E
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Transcribed Image Text:A five-year-old defender has a current market value of $4,500 and expected O&M costs of $3,000 this year, increasing by $1,400 per year. Future market values are expected to decline by
$800 per year. The machine can be used for another three years. The challenger costs $9,000 and has O&M costs of $1,800 per year, increasing by $900 per year. The machine will be needed
for only three years, and the salvage value at the end of that time is expected to be $2,200. The MARR is 11%.
Click the icon to view the interest factors for discrete compounding when MARR = 11% per year.
(a) Determine the annual cash flows for retaining the old machine for three years. Fill in the table below. (Round to the nearest dollar.)
Cash Flows
(Defender)
$
$
$
$
Period
(b) Determine whether now is the time to replace the old machine. First show the annual cash flows for the challenger. Fill in the table below. (Round to the nearest dollar.)
Cash Flows
(Challenger)
$
$
Yes
No
0
1
2
3
The equivalent annual cost (AEC) of retaining the machine is $
The equivalent annual cost (AEC) of replacing the machine is $
Should the company replace the old machine now? Choose the correct answer below.
Period
0
1
2
3
(Round to the nearest dollar.)
(Round to the nearest dollar.)
GA
S
Transcribed Image Text:N
123
2
4
LO
5
600
7
8
9
10
11
12
13
14
15
Single Payment
Compound
Amount
Factor
(F/P, i, N)
1.1100
1.2321
1.3676
1.5181
1.6851
1.8704
2.0762
2.3045
2.5580
2.8394
3.1518
3.4985
3.8833
4.3104
4.7846
Present
Worth Factor
(P/F, i, N)
0.9009
0.8116
0.7312
0.6587
0.5935
0.5346
0.4817
0.4339
0.3909
0.3522
0.3173
0.2858
0.2575
0.2320
0.2090
Compound
Amount
Factor
(F/A, i, N)
1.0000
2.1100
3.3421
4.7097
6.2278
7.9129
9.7833
11.8594
14.1640
16.7220
19.5614
22.7132
26.2116
30.0949
34.4054
Equal Payment Series
Sinking
Fund
Factor
(A/F, i, N)
1.0000
0.4739
0.2992
0.2123
0.1606
0.1264
0.1022
0.0843
0.0706
0.0598
0.0511
0.0440
0.0382
0.0332
0.0291
Present
Worth
Factor
(P/A, i, N)
0.9009
1.7125
2.4437
3.1024
3.6959
4.2305
4.7122
5.1461
5.5370
5.8892
6.2065
6.4924
6.7499
6.9819
7.1909
Capital
Recovery
Factor
(A/P, i, N)
1.1100
0.5839
0.4092
0.3223
0.2706
0.2364
0.2122
0.1943
0.1806
0.1698
0.1611
0.1540
0.1482
0.1432
0.1391
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