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A presently owned machine has the projected market value and M&O costs shown below. An outside vendor of services has offered to provide the service
A presently owned machine has the projected market value and M&O costs shown below. An outside vendor of services has offered to provide the service of the existing machine at a fixed price per year. If the presently owned machine is replaced now, the cost of the fixed-price contract will be $33,000 per year. If the presently owned machine is replaced next year or any time after that, the contract price will be $35,000 per year. Determine if and when the defender should be replaced with the outside vendor using an interest rate of 10% per year. Assume used equipment similar to the defender will always be available, but that the current equipment will not be retained more than three additional years M&O Cost, $per Year Market Value, $ 32,000 25,000 4,000 10,000 8,000 Retention Year 24,000 25,000 26,000
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