An existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates have been developed for both the defender and the challenger. Defender                                                                                             Challenger Current MV                                         $38,000                                Purchase price                                   $51,000 Required upgrade                            $2,000                                  Installation cost                                $5,500 Annual expenses                              $1,400                                  Annual expenses                              $1,000 Remaining useful life                      6 years                                  Useful life                                            10 years MV at end of useful life                 −$1,500                                MV at end of useful life                 $7,000 The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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An existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates have been developed for both the defender and the challenger.

Defender                                                                                             Challenger

Current MV                                         $38,000                                Purchase price                                   $51,000

Required upgrade                            $2,000                                  Installation cost                                $5,500

Annual expenses                              $1,400                                  Annual expenses                              $1,000

Remaining useful life                      6 years                                  Useful life                                            10 years

MV at end of useful life                 −$1,500                                MV at end of useful life                 $7,000

The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.

 

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