(Ch10) A company is considering replacing an existing piece of equipment. The company

uses an interest rate of 15%. They have identified a lease option for similar equipment that

will have an EAC of $7,500 (which includes the annual maintenance costs). The current

salvage value of the equipment they own is $15,000 and will decline to the following over

the next 4 years: $12,500, $9,500, $6,500, and $3,500. The O&M costs will increase to the

following over the next 4 years: $2,000, $3,000, $4,000, and $5,000. When should the

equipment be sold and the company move to leasing?

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