Problem 1a: An electronics manufacturing company is considering the replacement of its main soldering machine (Defender) with a new and more efficient model (Challenger). The possible salvage values of the Defender machine, if sold in one of the years 0 to 5, and the maintenance costs for retaining the existing machine over its remaining useful life are given in the table below. Assume year O is the base year. • Notice the Defender salvage values decline at a constant rate of -18%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 20%/year as the defender is retained from year to year. • The new replacement machine can be purchased now for $45,000. The salvage value if sold in years 1 to 8 and maintenance costs for switching over to the new machine are also given in the table below. Notice the Challenger salvage values decline at a constant rate of -10% / year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 15% / year. • Both new and old equipment would provide similar benefits (revenues). • The company uses an annual inflation less MARR' = 10% to evaluate projects.

Problem 1a: An electronics manufacturing company is considering the replacement of its main soldering machine (Defender) with a new and more efficient model (Challenger). The possible salvage values of the Defender machine, if sold in one of the years 0 to 5, and the maintenance costs for retaining the existing machine over its remaining useful life are given in the table below. Assume year O is the base year. • Notice the Defender salvage values decline at a constant rate of -18%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 20%/year as the defender is retained from year to year. • The new replacement machine can be purchased now for $45,000. The salvage value if sold in years 1 to 8 and maintenance costs for switching over to the new machine are also given in the table below. Notice the Challenger salvage values decline at a constant rate of -10% / year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 15% / year. • Both new and old equipment would provide similar benefits (revenues). • The company uses an annual inflation less MARR' = 10% to evaluate projects.

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 2E

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