A stamping machine currently has a salvage value of $10 000, and this will drop by 20% per year from now on. Its expected maintenance costs are $1 000 for this year, but in the following year it is expected to need a major overhaul, costing $3 500. In the year following the overhaul, its maintenance costs will be $500, and these will then go up by 30% per year. Your MARR is 10%. There is a challenger available that will do the same job for an EAC of $3 400. When should you replace the old machine? [Enter your response in years]

A stamping machine currently has a salvage value of $10 000, and this will drop by 20% per year from now on. Its expected maintenance costs are $1 000 for this year, but in the following year it is expected to need a major overhaul, costing $3 500. In the year following the overhaul, its maintenance costs will be $500, and these will then go up by 30% per year. Your MARR is 10%. There is a challenger available that will do the same job for an EAC of $3 400. When should you replace the old machine? [Enter your response in 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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