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An existing drill press has a salvage value now of $5000, which will fall to $4000 by the end of the year. The cost of

An existing drill press has a salvage value now of $5000, which will fall to $4000 by the end of the year. The cost of lower productivity using this drill press is $3000 this year. A new-fangled drill press, being considered as a replacement, has the following salvage values and loss of productivity:

Year

Salvage

Productivity Loss

0

$12,000

1

$9000

$0

2

$7000

$1000

3

$5000

$2000

4

$3000

$3000

Assume an interest rate of 15%. Calculate the EUAC for each year of the new-fangled drill press. Calculate the marginal cost of the existing drill press. In what year does the new-fangled drill press EUAC fall below the marginal cost of the existing drill press and what is the amount of the new-fangled drill press EUAC of that year?

Answers: Year new-fangled EUAC is less than Existings marginal cost: ____, EUAC in that year:___________

Reasoning/Work:

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