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A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $79000 or sold to a smaller company internationally for $31000. The upgraded machine will have an annual operating cost of $80000 per year and a $30000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $210000. Its salvage value will be $44000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 12.00% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years. a) The current machine should be replaced three years from now b) The equivalent AW for the next three years is $ -99588 ×

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $79000 or sold to a smaller company internationally for $31000. The upgraded machine will have an annual operating cost of $80000 per year and a $30000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $210000. Its salvage value will be $44000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 12.00% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years. a) The current machine should be replaced three years from now b) The equivalent AW for the next three years is $ -99588 ×

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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
Chapter9: Applications Of Cost Theory
Section: Chapter Questions
Problem 5E
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A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $79000 or sold to a smaller company internationally for $31000. The upgraded machine will have an annual operating cost of $80000 per year and a $30000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $210000. Its salvage value will be $44000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 12.00% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years. a) The current machine should be replaced three years from now b) The equivalent AW for the next three years is $ -99588 ×
Transcribed Image Text:A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $79000 or sold to a smaller company internationally for $31000. The upgraded machine will have an annual operating cost of $80000 per year and a $30000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $210000. Its salvage value will be $44000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 12.00% per year using a specified 3-year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now. b) Once decided, determine the equivalent AW for the next three years. a) The current machine should be replaced three years from now b) The equivalent AW for the next three years is $ -99588 ×
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