A presently owned machine can last 3 more years, if properly maintained at a cost of $15,000 per year. Its AOC is $31,000 per year. After 3 years, it can be sold for an estimated $9000. A replacement costs $80,000 with a $10,000 salvage value after 3 years and an operating cost of $19,000 per year. Different vendors have offered $10,000 and $20,000, respectively, for the current system as trade-in for the replacement machine. At i = 12% per year, perform a replacement study and determine whether the defender should be retained or replaced.
A presently owned machine can last 3 more years, if properly maintained at a cost of $15,000 per year. Its AOC is $31,000 per year. After 3 years, it can be sold for an estimated $9000. A replacement costs $80,000 with a $10,000 salvage value after 3 years and an operating cost of $19,000 per year. Different vendors have offered $10,000 and $20,000, respectively, for the current system as trade-in for the replacement machine. At i = 12% per year, perform a replacement study and determine whether the defender should be retained or replaced.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A presently owned machine can last 3 more years, if
properly maintained at a cost of $15,000 per year. Its
AOC is $31,000 per year. After 3 years, it can be
sold for an estimated $9000. A replacement costs
$80,000 with a $10,000 salvage value after 3 years
and an operating cost of $19,000 per year. Different
vendors have offered $10,000 and $20,000, respectively,
for the current system as trade-in for the replacement
machine. At i = 12% per year, perform a
replacement study and determine whether the defender
should be retained or replaced.
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