BioHealth, a biodevice systems leasing company, is considering a new equipment purchase to replace a currently owned

Question:

BioHealth, a biodevice systems leasing company, is considering a new equipment purchase to replace a currently owned asset that was purchased 2 years ago for $250,000. It is appraised at a current market value of only $50,000. An upgrade is possible for $200,000 now that would be adequate for another 3 years of lease rights, after which the entire system could be sold on the international circuit for an estimated $40,000. The challenger, which can be purchased for $300,000, has an expected life of 10 years and a $50,000 salvage value. Determine whether the company should upgrade or replace at a MARR of 12% per year. Assume the AOC estimates are the same for both alternatives.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...