A replacement study is to be performed on certain pressing equipment in an industrial laundry. The challenging asset has a computed AW of –$41,000 at i = 15% per year for its anticipated 10-year life. The defender can be sold now for $32,000 or kept for a maximum of 4 more years. If kept, the data below will apply to the defender. Additional years retained Operating Cost, $ EOY Salvage value, $ 1 34,000 28,000 2 36,000 22,000 3 38,000 15,000 4 40,000 5,000 a. In what year should the company replace the existing equipment with the challenger, assuming existing equipment can be replaced indefinitely with similar used equipment having the same AW as that currently used. (now, 4 years from now, 3 years from now, 2 years from now) b. What is the minimum economic life of the defender? (1 year, 4 years, 3 years, 2 years)

A replacement study is to be performed on certain pressing equipment in an industrial laundry. The challenging asset has a computed AW of –$41,000 at i = 15% per year for its anticipated 10-year life. The defender can be sold now for $32,000 or kept for a maximum of 4 more years. If kept, the data below will apply to the defender. Additional years retained Operating Cost, $ EOY Salvage value, $ 1 34,000 28,000 2 36,000 22,000 3 38,000 15,000 4 40,000 5,000 a. In what year should the company replace the existing equipment with the challenger, assuming existing equipment can be replaced indefinitely with similar used equipment having the same AW as that currently used. (now, 4 years from now, 3 years from now, 2 years from now) b. What is the minimum economic life of the defender? (1 year, 4 years, 3 years, 2 years)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 4E

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