A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now for $87,500 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $203,000. Its salvage value will be $50,000 for years 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values? The AW value of the defender is $-58699.42 and the AW value of the challenger is $- The company should replace the defender 3 years from now▾

A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now for $87,500 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $203,000. Its salvage value will be $50,000 for years 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values? The AW value of the defender is $-58699.42 and the AW value of the challenger is $- The company should replace the defender 3 years from now▾

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

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 1.1CE: What life cycle cost concept begins raising concerns by year 5 with any electric vehicle (EV)? If...

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