9-7. A high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model having a purchase price of $42,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if purchased, has a useful life of not more than two years. The projected resale values and operating and maintenance costs for the challenger and the defender are shown in the accompanying table on a year-by-year basis. If the before-taxMARR is 15%, when should the old assembly machine be replaced? Use the following data table for your analysis. (9.6, 9.7)

Challenger Defender Market O&M Market O&M Year Value Costs Value Costs 0 $42,500 — $25,000 —

1 31,000 $10,000 17,000 $14,000 2 25,000 12,500