Question
A company, ABC Manufacturing, is facing a replacement decision for its old machine. The old machine was purchased three years ago for $75,000 and has
A company, ABC Manufacturing, is facing a replacement decision for its old machine. The old machine was purchased three years ago for $75,000 and has an expected remaining useful life of five years. It can be sold today for $18,000, but it has been inefficient for the companys increased production demands. The company is considering replacing it with a new machine that costs $110,000, including installation. The new machine has a five-year useful life and will reduce cash operating expenses by $50,000 per year. The companys interest rate for project justification is 12%, and they do not expect a better machine to be available in the next five years. The annual equivalent costs for the defender (old machine) and the challenger (new machine) need to be calculated using the opportunity-cost approach. Based on the analysis, the company needs to determine whether it should replace the old machine or not. Options:
A) AECD(12%) = $52,783.34; AECC(12%) = $27,551.07; YES
B) AECD(12%) = $54,826.89; AECC(12%) = $29,461.39; NO
C) AECD(12%) = $52,783.34; AECC(12%) = $27,551.07; YES
D) Answers A, B, and C are not correct
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