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A container company is considering replacing its automatic painting equipment, which was purchased 9 years ago at a cost of $ 700,000. Right now that
A container company is considering replacing its automatic painting equipment, which was purchased 9 years ago at a cost of $ 700,000. Right now that team has a market value of $ 30,000. The residual value from this year onward can be estimated as $ 30,000 (0.7t), where t = number of additional years. The annual O&M cost for the equipment is $ 300,000 and is expected to increase by $ 10,000 / year each year. New equipment is available on the market at a cost of $ 800,000 and the seller offers to take the used equipment trade-in for $ 45,000. This new equipment will have an operation and maintenance cost of no more than $ 120,000. For this equipment, the residual value at the end of each year is estimated as $ 800,000 (0.8t)
a) Calculate the equivalent annual cost in the economic life of the defender
b) If the economic life of the challenger is reached at 15 years and the equivalent annual cost in the economic life of the challenger is $ 335,000, what should be the decision now?
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