A machine purchased $3$ years ago for $$140,000$ is currently too slow to satisfy increased demand. The machine can be upgraded now

for $$77,500$ or sold to a smaller company for $$40,000.$ The current machine will have an annual operating cost of $$85,000$ per year

and a $$30,000$ salvage value in $3$ years. If upgraded, the presently owned machine will definitely be retained for $3$ more years. The

replacement, which will serve the company now and for at least $8$ years, will cost $$201,000.$ Its salvage value will be $$50,000$ for years

$1$ through $5,$$$20,000$ after $6$ years, and $$10,000$ thereafter. It will have an estimated operating cost of $$65,000$ per year. The company

asks you to perform an economic analysis at $15\%$ per year using a $3-$year planning horizon. Should the company replace the presently

owned machine now, or do it $3$ years from now? What are the AW values?

The AW value of the defender is $$-$

$$ and the AW value of the challenger is $$-$

The company should

replace the defender $3$ years from now