In the process of performing a replacement study, an engineer at a fiber optics manufacturing company has two options to reduce costs on a production line. The currently owned Robot X can be sold now for $82,000. If kept, it will have an annual M&O cost of $30,000, and salvage values of $50,000, $42,000, and $35,000 after 1, 2, and 3 years, respectively. A challenger, Robot Y, will have a first cost of $97,000, an annual M&O cost of $27,000, and salvage values of $66,000, $56,000, and $42,000 after 1, 2, and 3 years, respectively. Which robot should be selected if a 2-year study period is used at an interest rate of 12% per year? Solve by two ways: by hand and by spreadsheet.

In the process of performing a replacement study, an engineer at a fiber optics manufacturing company has two options to reduce costs on a production line. The currently owned Robot X can be sold now for $82,000. If kept, it will have an annual M&O cost of $30,000, and salvage values of $50,000, $42,000, and $35,000 after 1, 2, and 3 years, respectively. A challenger, Robot Y, will have a first cost of $97,000, an annual M&O cost of $27,000, and salvage values of $66,000, $56,000, and $42,000 after 1, 2, and 3 years, respectively. Which robot should be selected if a 2-year study period is used at an interest rate of 12% per year? Solve by two ways: by hand and by spreadsheet.

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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Please answer by hand calculations not excel:A presently owned machine can last 3 more years, if properly maintained at a cost of $15,000 per year. Its AOC is $31,000 per year. After 3 years, it can be sold for an estimated $9000. A replacement costs $80,000 with a $10,000 salvage value after 3 years and an operating cost of $19,000 per year. Different vendors have offered $10,000 and $20,000, respectively, for the current system as trade-in for the replacement machine. At i = 12% per year, perform a replacement study and determine whether the defender should be retained or replaced. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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