The plant manager has 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 existir equipment be retained longer than two more years and that once it is replaced, a contractor wil provide the same service from then on at a cost of $97,000 per year. The salvage value of the currently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 t years from now. The operating cost is expected to be $85,000 per year. Using an interest rate 10% per year, determine when the defending equipment should be retired. Annual Worth of Defender, Year 1 = Annual Worth of Defender, Year 2 = At the end of year the asset should be retired.

The plant manager has 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 existir equipment be retained longer than two more years and that once it is replaced, a contractor wil provide the same service from then on at a cost of $97,000 per year. The salvage value of the currently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 t years from now. The operating cost is expected to be $85,000 per year. Using an interest rate 10% per year, determine when the defending equipment should be retired. Annual Worth of Defender, Year 1 = Annual Worth of Defender, Year 2 = At the end of year the asset should be retired.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer the following question in the picture

The plant manager has 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 and that once it is replaced, a contractor will
provide the same service from then on at a cost of $97,000 per year. The salvage value of the
currently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 two
years from now. The operating cost is expected to be $85,000 per year. Using an interest rate of
10% per year, determine when the defending equipment should be retired.
Annual Worth of Defender, Year 1 =
Annual Worth of Defender, Year 2 =
At the end of year
the asset should be retired.

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