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
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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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.
Transcribed Image Text: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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