Defender Challenger Market Market value, M&O cost, value, M&O cost, Year 2$ 40,000 80,000 1 32,000 -55,000 65,000 -37,000 2 23,000 -55,000 39,000 -37,000 3 11,000 -55,000 20,000 -37,000 19,000 -38,000 5 11,000 -39,000
Defender Challenger Market Market value, M&O cost, value, M&O cost, Year 2$ 40,000 80,000 1 32,000 -55,000 65,000 -37,000 2 23,000 -55,000 39,000 -37,000 3 11,000 -55,000 20,000 -37,000 19,000 -38,000 5 11,000 -39,000
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
The market values and M&O costs associated with a presently owned machine and a possible replacement are shown below. The plant manager has told you that he is interested only in what happens over the next three years and that if the defender is to be replaced, it must be replaced now or kept for the entire 3-year study period. Using an interest rate of 10% per year, determine whether or not the defender should be replaced.
Transcribed Image Text:Defender
Challenger
Market
Market
value,
M&O cost, value, M&O cost,
Year
2$
40,000
80,000
1
32,000
-55,000
65,000
-37,000
2
23,000
-55,000
39,000
-37,000
3
11,000
-55,000
20,000
-37,000
19,000
-38,000
5
11,000
-39,000
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