A critical machine in the Freeport copper refining operation was purchased 7 years ago for $160,000.

Last year a replacement study was performed with the decision to retain for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if “scavenged” for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 the first year and $25,000 the second year. Alternatively, the company can purchase a new system that will have an equivalent annual worth of $54,063 per year over its ESL. The company uses a MARR of 10% per year. Use annual worth analysis to determine when the company should replace the machine.