A presently owned machine can last 3 more years, if properly maintained at a cost of $30,000 per year. Its annual operating cost is an additional $31,000 per year. The current market value of this machine is $40,000. If sold after a year from now, its salvage will be $22,000. The salvage value decreases by $2,000 each year thereafter. The company wants to replace it with a new machine that will cost $160,000 to purchase and $38,000 per year as operation costs. The salvage value of this replacement is $24,000, regardless of when it will be sold. The maximum useful life of that new machine is 3 years. At i = 12% per year, do the following: a) Determine the Equivalent Annual Costs for the defender and the challenger for the next 3 years. Show your steps and put your results in a table that looks like this: Year Defender EAC Challenger EAC 1 2 3 b) Determine the Economic Service Lives of the Defender and the Challenger from that table. c) Based on the above, What should be the replacement decision? Decision 1: Replace the Defender Now Decision 2: Retain the Defender till the end of its useful life Decision 3: Retain the Defender for one more year then re-do the replacement analysis then?

Question #2 (20 Points): A presently owned machine can last 3 more years, if properly maintained at a cost of $30,000 per year. Its annual operating cost is an additional $31,000 per year. The current market value of this machine is $40,000. If sold after a year from now, its salvage will be $22,000. The salvage value decreases by $2,000 each year thereafter. The company wants to replace it with a new machine that will cost $160,000 to purchase and $38,000 per year as operation costs. The salvage value of this replacement is $24,000, regardless of when it will be sold. The maximum useful life of that new machine is 3 years. At i= 12% per year, do the following: a) Determine the Equivalent Annual Costs for the defender and the challenger for the next 3 years. Show your steps and put your results in a table that looks like this: Year Defender EAC Challenger EAC 1 2 3 b) Determine the Economic Service Lives of the Defender and the Challenger from that table. c) Based on the above, What should be the replacement decision? Decision 1: Replace the Defender Now Decision 2: Retain the Defender till the end of its useful life Decision 3: Retain the Defender for one more year then re-do the replacement analysis then? Please justify to receive the full point. 2 Question #2 (20 Points): A presently owned machine can last 3 more years, if properly maintained at a cost of $30,000 per year. Its annual operating cost is an additional $31,000 per year. The current market value of this machine is $40,000. If sold after a year from now, its salvage will be $22,000. The salvage value decreases by $2,000 each year thereafter. The company wants to replace it with a new machine that will cost $160,000 to purchase and $38,000 per year as operation costs. The salvage value of this replacement is $24,000, regardless of when it will be sold. The maximum useful life of that new machine is 3 years. At i= 12% per year, do the following: a) Determine the Equivalent Annual Costs for the defender and the challenger for the next 3 years. Show your steps and put your results in a table that looks like this: Year Defender EAC Challenger EAC 1 2 3 b) Determine the Economic Service Lives of the Defender and the Challenger from that table. c) Based on the above, What should be the replacement decision? Decision 1: Replace the Defender Now Decision 2: Retain the Defender till the end of its useful life Decision 3: Retain the Defender for one more year then re-do the replacement analysis then? Please justify to receive the full point. 2