Defender Current MV $38,200 Upgrade cost (year 0) Annual expenses $2,000 $1,400 in year one, and increasing at the rate of 8% per year thereafter Useful life (years) MV at end of useful life -$1,500 Challenger Purchase price $51,000 Installation cost $5,500 Annual expenses $1,000 in year one, and increasing by $150 per year thereafter 10 Useful life (years) MV at end of useful life $7,000
An existing robot is used in a commercial material laboratory to handle ceramic samples in the hightemperature environment that is part of several test procedures. Due to changing customer needs, the robot will not meet future service requirements unless it is upgraded at a cost of $2,000. Because of this situation, a new advanced technology robot has been selected for potential replacement of the existing robot. The accompanying estimates have been developed from information provided by some current users of the new robot and data obtained from the manufacturer. The firm’s before-tax MARR is 25% per year. Based on this information,
should the existing robot be replaced? Assume that a robot will be needed for an indefinite period.
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