Task 2 (Replacement Analysis - Defender/Challenger Scenario) Hadeel Majan Industries purchased a machine 2 years ago for a cost of RO 15000 to be useful for 8 years. Its salvage value at the end of its life would be RO 1500. The machine has an annual maintenance cost of RO 1125. Presently the machine has a market value of RO 9000. The company has a plan to upgrade the manufacturing facility by replacing the existing machine with a new machine. The new machine is available for RO 11250 and could be used for a 6-year period and will have an annual maintenance cost of RO 900. The salvage value of the new machine will be RO 1687.5. Using an interest rate of 12%, find whether it is worth replacing the present machine with the new machine. Use Annual Equivalent Cost for comparison.

Task 2 (Replacement Analysis - Defender/Challenger Scenario) Hadeel Majan Industries purchased a machine 2 years ago for a cost of RO 15000 to be useful for 8 years. Its salvage value at the end of its life would be RO 1500. The machine has an annual maintenance cost of RO 1125. Presently the machine has a market value of RO 9000. The company has a plan to upgrade the manufacturing facility by replacing the existing machine with a new machine. The new machine is available for RO 11250 and could be used for a 6-year period and will have an annual maintenance cost of RO 900. The salvage value of the new machine will be RO 1687.5. Using an interest rate of 12%, find whether it is worth replacing the present machine with the new machine. Use Annual Equivalent Cost for comparison.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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