Question 3 Alpha software is considering replacing one of their computer servers with a newer model, the current model in question is now worth $1,200,000 (future market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs S200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards. A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of $120,000 for the 1" year which increases by 32% for subsequent years. The new server's (challenger's) market value will drop 25% per year through its service life.
Question 3 Alpha software is considering replacing one of their computer servers with a newer model, the current model in question is now worth $1,200,000 (future market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs S200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards. A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of $120,000 for the 1" year which increases by 32% for subsequent years. The new server's (challenger's) market value will drop 25% per year through its service life.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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![Question 3
Alpha software is considering replacing one of their computer servers with a newer model, the current
model in question is now worth $1,200,000 (future market values is forecasted to drop by 20% per year).
If kept the current server system will require an immediate overhaul that costs $200,000. The operation
cost of this server is $170,000 for the first year and will increase by 33% afterwards.
A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of
S120,000 for the 1* year which increases by 32% for subsequent years. The new server's (challenger's)
market value will drop 25% per year through its service life.
Knowing that the company's MARR is 10%
AJ Plot total AE cost (uniform annual equivalent cost) vs useful life for the defender as well as the
challenger up to 10 years.
B] Find the economic lives of the defender & the challenger.
CJ Determine ifwhen the defender should be replaced within 10 years.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc9133870-6329-47fc-8646-3a7c388192b7%2F789f103f-053c-41a7-8438-e1c2836926e5%2Fljwknn5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 3
Alpha software is considering replacing one of their computer servers with a newer model, the current
model in question is now worth $1,200,000 (future market values is forecasted to drop by 20% per year).
If kept the current server system will require an immediate overhaul that costs $200,000. The operation
cost of this server is $170,000 for the first year and will increase by 33% afterwards.
A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of
S120,000 for the 1* year which increases by 32% for subsequent years. The new server's (challenger's)
market value will drop 25% per year through its service life.
Knowing that the company's MARR is 10%
AJ Plot total AE cost (uniform annual equivalent cost) vs useful life for the defender as well as the
challenger up to 10 years.
B] Find the economic lives of the defender & the challenger.
CJ Determine ifwhen the defender should be replaced within 10 years.
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