Please answer the following question in the picture The plant manager has asked you to do a cost analysis to determine when currently ownedequipment should be replaced. The manager stated that under no circumstances will the existingequipment be retained longer than two more years and that once it is replaced, a contractor willprovide the same service from then on at a cost of $97,000 per year. The salvage value of thecurrently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 twoyears from now. The operating cost is expected to be $85,000 per year. Using an interest rate of10% 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 yearthe asset should be retired.

The Annual Worth is the equivalent uniform annual worth of all estimated costs and benefits during the life cycle of an investment We have been given that :The construction will provide the service at cost = $97,000 per yearThe salvage value of equipment is estimated to be = $37,000 now , $30,000 in 1 year, $19,000 in 2 year.The operating cost is = $85,000 pr yearInterest = 10% per yearThe formula to calculate annual worth is : The annual worth of defender, Year 1Seeing the values from the compound factor tableThe annual worth of defender, Year 1The current equipment economic service life is one year with AW = -$95,700. Now, we have to compare it with the new equipment that has AW = -$97,000. The current equipment should be retired in one year, so the company should keep it one year and then replace it with a contractor.Final AnswerAnnual Worth of Defender, Year 1 = -$95,700Annual worth of defender, Year 2 = -$97,271At the end of the year current equipment the asset should be retired.