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Bowling Green Clinic is considering replacement for a machine that was purchased for $75,000 two years ago. The capital costs the company 10% per year.

Bowling Green Clinic is considering replacement for a machine that was purchased for $75,000 two years ago. The capital costs the company 10% per year. The company made the following estimates for the challenger and defender, as shown in the following table.

1.) The AW of the challenger and the defender at the end of year 3?

2.) In the previous problem, the challenger should replace the defender at the end of year?

Challenger Defender
P=$85,000 Market Value =$60,000
AOC=10,000 in year 1 with an increase of 4000 per year thereafter. AOC=8,000 in year 1 with an increase of 4000 per year thereafter + $16,000 retrofit next year
Estimated retention period= no more than 5 years Estimated retention period= no more than 4 years
Market Value= deceasing by20%/ year Market Value= deceasing by20%/ year

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