A piece of equipment that was purchased 2 years ago by Toshiba Imaging for $50,000 was expected to have a useful life of 5 years with a $5000 salvage value. Its performance was less than expected, and it was upgraded for $20,000 one year ago. Increased demand now requires that the equipment be upgraded again for another $17,500 so that it can be used for 3 more years. If upgraded, its M&O costs will be $29,500 and it will have a $10,000 salvage after 3 years. Alternatively, it can be replaced with new equipment priced at $65,000 with M&O costs of $14,000 per year and a salvage value of $23,000 after 6 years. If replaced now, the existing equipment will be sold for $7000. Determine the values of P, S, M&O, and n for the defender in a replacement study. The value of P is $- 24500 ✔ The value of S is $ 29500 13 The value of M&O is $- 10000 per year. The value of n is 3 years. The values of P, S, M&O, and n for the defender in this replacement study are: • P= -$65,000 (cost of the new equipment) • S = $23,000 (salvage value of the new equipment after six years) • M&O = $14,000 per year (annual M&O costs of the new equipment) ⚫ n = 6 years (useful life of the new equipment)
A piece of equipment that was purchased 2 years ago by Toshiba Imaging for $50,000 was expected to have a useful life of 5 years with a $5000 salvage value. Its performance was less than expected, and it was upgraded for $20,000 one year ago. Increased demand now requires that the equipment be upgraded again for another $17,500 so that it can be used for 3 more years. If upgraded, its M&O costs will be $29,500 and it will have a $10,000 salvage after 3 years. Alternatively, it can be replaced with new equipment priced at $65,000 with M&O costs of $14,000 per year and a salvage value of $23,000 after 6 years. If replaced now, the existing equipment will be sold for $7000. Determine the values of P, S, M&O, and n for the defender in a replacement study. The value of P is $- 24500 ✔ The value of S is $ 29500 13 The value of M&O is $- 10000 per year. The value of n is 3 years. The values of P, S, M&O, and n for the defender in this replacement study are: • P= -$65,000 (cost of the new equipment) • S = $23,000 (salvage value of the new equipment after six years) • M&O = $14,000 per year (annual M&O costs of the new equipment) ⚫ n = 6 years (useful life of the new equipment)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A piece of equipment that was purchased 2 years ago by
Toshiba Imaging for $50,000 was expected to have a useful life
of 5 years with a $5000 salvage value. Its performance was less
than expected, and it was upgraded for $20,000 one year ago.
Increased demand now requires that the equipment be
upgraded again for another $17,500 so that it can be used for 3
more years. If upgraded, its M&O costs will be $29,500 and it
will have a $10,000 salvage after 3 years. Alternatively, it can be
replaced with new equipment priced at $65,000 with M&O
costs of $14,000 per year and a salvage value of $23,000 after
6 years. If replaced now, the existing equipment will be sold for
$7000. Determine the values of P, S, M&O, and n for the
defender in a replacement study.
The value of P is $- 24500 ✔
The value of S is $ 29500
13
The value of M&O is $- 10000
per year.
The value of n is
3
years.
Transcribed Image Text:The values of P, S, M&O, and n for the defender in this replacement study are:
• P= -$65,000 (cost of the new equipment)
• S = $23,000 (salvage value of the new equipment after six years)
• M&O = $14,000 per year (annual M&O costs of the new equipment)
⚫ n = 6 years (useful life of the new equipment)
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