Five years ago UTT’s cafeteria bought an ice-maker with a nominal 10-year life for $1000 and an end-of-life $100 salvage value. The ice-maker’s current market value is $300. Historically, its average operating expenses for any year x have been C_x = $100 + $25(x – 1), x = 1 to 5, and UTT expects operating expenses to continue following this trend.

UTT is considering replacing the ice-maker with a more ozone-friendly one for $1,200, also with a 10-year life, and with salvage value dropping by $100 each year from its initial price. Average operating expenses are uniform at $360. UTT applies a 10% MARR to evaluate this replacement decision, and a 5-year analysis. Should they replace the ice-maker now?

Answer rating: 100% (QA)

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