A company is considering replacing an existing machine (defender) with newer machine (challenger). If repaired, the defender can be used for another 5 years. The current market value of the defender is $8,200 (i.e., it can be sold now for $8,200). The operating cost of the defender is $2,200 during the first year which will increase 40% per year every year after the overhaul. Future market values are expected to decline by 35% per year. The new machine (challenger) has a service life of 7 years. It will cost $9,900 to purchase now. Its annual operation and maintenance cost is $1,850 per year in the first year. This annual operation and maintenance cost will increase by 35% per year for subsequent years. The market value of the challenger will decline by 31% every year over its service life. Use MARR equals 8%.

a] Create table showing the market value and annual operation and maintenance costs for the defender and the challenger for the next seven years.

[b] Find the economic lives of: [i] the defender and [ii] the challenger.

[c] Determine when the defender should be replaced (if any).

Write out the related equation