Equipment replacement. An equipment item (defender) was purchased 5 years ago for $42,000. It has a current salvage (resale) value of $14,000, a remaining life of 3 years with zero salvage thereafter, and O&M costs of $27,000/year. A new equipment model (challenger) costs $55,000, has a life of 14 years with $10,000 salvage value thereafter, and O&M costs of $22,000/year. MARR = 15%. The company needs a unit of this type for their production facility; the plans are to operate the production facility for a very long time. The choice is between keeping the old item (defender) for three more years, or immediately replacing it with the new model (challenger).

Decide if the defender should now immediately be replaced, or kept for three more years and then be replaced. Explain with numerical work.

What is the common planning period in this example?