Question
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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