high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model having a purchase price of $42,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if purchased, has a useful life of not more than two years. The projected resale values and operating and maintenance costs for the challenger and the defender are shown in the accompanying table on a year-by-year basis. The before-tax MARR is 15%. Year Challenger Defender Market Value O&M Costs Market Value O&M Costs 0 $42,500 - $25,000 - 1 31,000 $10,000 17,000 14,000 2 25,000 12,500 - - a. What is the total marginal cost of the challenger in EOY 1? b. When should the machine be replaced?
A high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model having a purchase price of $42,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if purchased, has a useful life of not more than two years. The projected resale values and operating and maintenance costs for the challenger and the defender are shown in the accompanying table on a year-by-year basis. The before-tax MARR is 15%.
|
Year |
Challenger |
Defender |
||
|
Market Value |
O&M Costs |
Market Value |
O&M Costs |
|
|
0 |
$42,500 |
- |
$25,000 |
- |
|
1 |
31,000 |
$10,000 |
17,000 |
14,000 |
|
2 |
25,000 |
12,500 |
- |
- |
a. What is the total marginal cost of the challenger in EOY 1?
b. When should the machine be replaced?
c. What is the EUAC of the challenger in EOY 2?
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