4: Replacement Decisions (15 marks) The Lift Operations Manager at the Blue Mountain Ski Resort in Collingwood, ON has decided to carry out an analysis to determine when the chairlift up to their Black Diamond run should be replaced. The existing chairlift was purchased 25 years ago for $715 000. The costs of operating and maintaining this lift for a 5-year study period are predicted to be $70 000 in year 1 and increasing by $1 300 each year after. Blue Mountain Ski Resort uses a MARR of 10% for lift operations projects. All calculations should be to the nearest dollar. a) Assume the chairlift loses value following a declining-balance depreciation model with a depreciation rate of 7%. Calculate the salvage value for now (year=0) and each of the next 5 years. b) Find the economic life of the existing chairlift. What is EAC*? c) The Lift Operation Manager has done some market research for possible replacement alternatives. The results of this research are outlined in the following table. The economic lives of the alternative replacements as well as the EAC for each, assuming they are kept for the duration of their economic lives, are represented. Assuming cyclic replacement of the chairlift by the best challenger which is the best replacement option and when should the existing chairlift be replaced? Fully justify your answer. (2 marks) Alternative EAC* Economic Life ($) (Years) A 105,100 18 B 93,400 24 C 89,800 20 D 97,200 25