A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000. This pump can be kept in service for an additional four years, or it can be sold for $35,500 and replaced by a new pump. The purchase price of the replacement pump is $49,500. The projected MVs and operating and maintenance costs over the four-year planning horizon are shown in the table that follows. Assuming the MARR is 88%,

(a) determine the economic life of the challenger and (b) determine when the defender should be replaced.

Defender Challenger Year MV at EOY O&M Costs MV at EOY O&M Costs 1 24,500 17,500 38,500 13500 2 21,500 20,500 30,500 16,500 3 18,500 23,500 22,500 19,500 4 15,500 26,500 14,500 22,500