for $92,500 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $204,000. Its salvage value will be $50,000 for years. 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values? The AW value of the defender is $- and the AW value of the challenger is $- The company should replace the defender 3 years from now
for $92,500 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The replacement, which will serve the company now and for at least 8 years, will cost $204,000. Its salvage value will be $50,000 for years. 1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values? The AW value of the defender is $- and the AW value of the challenger is $- The company should replace the defender 3 years from now
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now
for $92,500 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year
and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The
replacement, which will serve the company now and for at least 8 years, will cost $204,000. Its salvage value will be $50,000 for years
1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company
asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently
owned machine now, or do it 3 years from now? What are the AW values?
The AW value of the defender is $-
and the AW value of the challenger is $-
The company should replace the defender 3 years from now](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7eaa16c8-c360-4562-b71c-82544ccef846%2F389eba67-30f0-4538-b277-7660f9e82847%2Fptfkqh8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A machine purchased 3 years ago for $140,000 is currently too slow to satisfy increased demand. The machine can be upgraded now
for $92,500 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of $85,000 per year
and a $30,000 salvage value in 3 years. If upgraded, the presently owned machine will definitely be retained for 3 more years. The
replacement, which will serve the company now and for at least 8 years, will cost $204,000. Its salvage value will be $50,000 for years
1 through 5, $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $65,000 per year. The company
asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently
owned machine now, or do it 3 years from now? What are the AW values?
The AW value of the defender is $-
and the AW value of the challenger is $-
The company should replace the defender 3 years from now
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