An existing machine can be kept if $1,000 is spent now to update it for future service...
Question:
An existing machine can be kept if $1,000 is spent now to update it for future service requirements. Alternatively, the company can purchase a new machine to replace the old machine. The following estimates have been developed for both the defender and the challenger.
| Defender | Challenger | ||
|---|---|---|---|
| Current MV | $35,500 | Purchase price | $51,500 |
| Required upgrade | $1,000 | Installation cost | $5,500 |
| Annual Expense | $1,100 | Annual expense | $500 |
| Remaining useful life | 6 years | Useful life | 10 years |
| MV at the end of useful life | -$500 | MV at the end of useful life | $6,500 |
The company's before-tax MARR is 20% per year.
Based on the information, should the existing machine be replaced right now? Assume the machine will be needed for an indefinite period of time.
a) Using AW method, Defender by $927
b) Using AW method, Challenger by $1,718
c) Using AW method, Challenger by $927
d) Using AW method, Defender by $1,718
Present Worth Analysis:
The present worth analysis is the method used to evaluate Assets and projects. In this method, the cash inflow of the project is discounted using the required rate of return. The alternative having the highest present was selected.
Answer and Explanation: 1
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View this answerDefender annual worth can be calculated as follows:
Defender Annual Worth = -36,500(A/P, 20%, 6) - 1,100 - 500(A/F, 20%, 6)
Defender Annual Worth =...
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