2. You purchased an industrial oven five years ago for $70,000. O&M costs are $20,000 this year and are expected to increase by $1,500 each year for the next five years. The current salvage value of the machine is $20,000; salvage value after one year is estimated to be $10,000; after two years, $9,000; after three years, $8,000; after four years, $7,000; and so on.

A new industrial oven is available for purchase at a price of $85,000, including installation. The market value of the new oven will decrease at a rate of 10% each year. The O&M costs are expected to be $11,000 in the first year, and will increase at a rate of 10% each year. The maximum service life of the new oven is 10 years.

Your company uses an interest rate of 12% for all project evaluations.

(a) Find the remaining economic life of the currently owned asset.

(b) What is the economic service life of the new oven?

(c) Use replacement analysis to determine the earliest year in which the current oven should be replaced with the new oven.