Alpha software is considering replacing one of their computer servers with a newer model, the curent model in question is now worth $1,200,000 (fiuture market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs $200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards. A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of $120,000 for the 1st year which increases by 32% for subsequent years. The new server's (challenger's) market value will drop 25% per year through its service life. Knowing that the company's MARR is 10% A] Plot total AE cost (uniform annual equivalent cost) vs useful life for the defender as well as the challenger up to 10 years. B] Find the economic lives of the defender & the challenger. C Determine if when the defender should be replaced within 10 years

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Alpha software is considering replacing one of their computer servers with a newer model, the curent model in question is now worth $1,200,000 (fiuture market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs $200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards.
A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of
$120,000 for the 1st year which increases by 32% for subsequent years. The new server's (challenger's)
market value will drop 25% per year through its service life.
Knowing that the company's MARR is 10%
A] Plot total AE cost (uniform annual equivalent cost) vs useful life for the defender as well as the
challenger up to 10 years.
B] Find the economic lives of the defender & the challenger.
C Determine if when the defender should be replaced within 10 years.

Expert Solution
steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Equivalent Uniform Annual Benefit and Cost
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education