A presently owned machine has the projected market value and M&O costs shown below. An outside vendor of services has offered to provide the service of the existing machine at a fixed price per year. If the presently owned machine is replaced now, the cost of the fixed-price contract will be $33,000 per year. If the presently owned machine is replaced next year or any time after that, the contract price will be $35,000 per year. Determine if and when the defender should be replaced with the outside vendor using an interest rate of 10% per year. Assume used equipment similar to the defender will always be available, but that the current equipment will not be retained more than three additional years. Retention Year Market Value, $ M&O Cost, $ per Year 0 32,000 — 1 25,000 24,000 2 14,000 25,000 3 10,000 26,000 4 8,000 —
A presently owned machine has the projected market
value and M&O costs shown below. An outside
vendor of services has offered to provide the service
of the existing machine at a fixed price per year. If
the presently owned machine is replaced now, the
cost of the fixed-price contract will be $33,000 per
year. If the presently owned machine is replaced
next year or any time after that, the contract price
will be $35,000 per year. Determine if and when the
defender should be replaced with the outside vendor
using an interest rate of 10% per year. Assume
used equipment similar to the defender will always
be available, but that the current equipment will not
be retained more than three additional years.
Retention Year Market Value, $
M&O Cost,
$ per Year
0 32,000 —
1 25,000 24,000
2 14,000 25,000
3 10,000 26,000
4 8,000 —
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