Defender

1. The current market value of the Defender is $8,800.

2. The operating cost of the defender is $2,100 during the first year which will increase 40% per year every year after the overhaul.

3. Future market values are expected to decline by 35% per year.

4. The Defender can only be kept for five more years.

Challenger

1. The new machine (challenger) has a service life of 7 years.

2. It will cost $9,800 to purchase.

3. Its annual operation and maintenance cost is $2,000 per year in the first year.

4. This annual operation and maintenance cost will increase by 35% per year for subsequent years.

5. The market value of the challenger will decline by 31% every year over its service life.

Use MARR value of 10%.

a] Find the economic lives of: [i] the defender and [ii] the challenger.

b] Determine when the defender should be replaced.