A machine purchased 3 years ago for $140,000 is now too slow to satisfy increased demand. The machine can be upgraded now for $70,000 or soldto 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 $220,000. 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?
A machine purchased 3 years ago for $140,000 is now too slow to satisfy increased demand. The machine can be upgraded now for $70,000 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 $220,000. 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?
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