The plant manager asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existing equipment be retained longer than two more years It can be replaced any year with an outside contractor at a cost of $97,000 per year. The market value of the currently owned equipment is estimated to be $37,000 now, $30,000 in one year, and $19,000 two yearsfrom now. The operating cost is $85,000 per year. Using an interest rate of 10% per year, determine when the defending equipment should be retired.
The plant manager asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existing equipment be retained longer than two more years It can be replaced any year with an outside contractor at a cost of $97,000 per year. The market value of the currently owned equipment is estimated to be $37,000 now, $30,000 in one year, and $19,000 two yearsfrom now. The operating cost is $85,000 per year. Using an interest rate of 10% per year, determine when the defending equipment should be retired.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
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The plant manager asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existing equipment be retained longer than two more years It can be replaced any year with an outside contractor at a cost of $97,000 per year. The market value of the currently owned equipment is estimated to be $37,000 now, $30,000 in one year, and $19,000 two years
from now. The operating cost is $85,000 per year. Using an interest rate of 10% per year, determine when the defending equipment should be retired.
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