A machine was installed 5 years ago. Its market value is now $15,000 and is expected to decline by 10%/year over the next five years. It is projected that this machine will be operational for another five years, after which time it will be scrapped (no salvage value). This year, its annual costs are estimated as $1500, but will increase by $1000/year thereafter. A new machine is now available for $20,000. It has no annual costs over its five-year minimum cost life (i.e., economic life). Using an 8% MARR, when (if at all) should the existing machine be replaced with the new machine? Group of answer choices Keep Defender for 2 more years and then replace with challenger Keep defender for 3 more years and then replace with challenger Do nothing Keep defender for 4 more years and then replace with challenger
A machine was installed 5 years ago. Its market value is now $15,000 and is expected to decline by 10%/year over the next five years. It is projected that this machine will be operational for another five years, after which time it will be scrapped (no salvage value). This year, its annual costs are estimated as $1500, but will increase by $1000/year thereafter. A new machine is now available for $20,000. It has no annual costs over its five-year minimum cost life (i.e., economic life). Using an 8% MARR, when (if at all) should the existing machine be replaced with the new machine? Group of answer choices Keep Defender for 2 more years and then replace with challenger Keep defender for 3 more years and then replace with challenger Do nothing Keep defender for 4 more years and then replace with challenger
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A machine was installed 5 years ago. Its market value is now $15,000 and is expected to decline by 10%/year over the next five years. It is projected that this machine will be operational for another five years, after which time it will be scrapped (no salvage value). This year, its annual costs are estimated as $1500, but will increase by $1000/year thereafter.
A new machine is now available for $20,000. It has no annual costs over its five-year minimum cost life (i.e., economic life). Using an 8% MARR, when (if at all) should the existing machine be replaced with the new machine?
Group of answer choices
Keep Defender for 2 more years and then replace with challenger
Keep defender for 3 more years and then replace with challenger
Do nothing
Keep defender for 4 more years and then replace with challenger
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