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2. (25 points) An asset is purchased for $350,000. Its 085M costs are $50,000 in the first year and are expected to grow 25% each year through its maximum service life of ve years. The salvage value of the asset drops 30% after the rst year and an additional 10% each year thereafter. If the interest rate is 15%. (a) What is the economic life of the asset? (b) If an asset currently owned is 3-yearsrold, should it he kept or replaced? If kept, for how long'? Do this using the marginal cost analysis. (c) Re-solve part ([1), assuming that the asset is needed to be service for only four more periods. Do this using the EAC method. (d) Reconsider the above asset again. but assume that a superior challenger is available which costs $360,000. However, 0&M costs for the challenger start at $40,000 and increase 15% each year, while the salvage value declines 10% each period. The challenger also has a maximum service life of ve years. (i) If this asset is the only challenger for the foreseeable future, when should the three-yearold asset from above be replaced, assuming an infinite horizon? Use the EAC method. (ii) Re-solve part (i) if the horizon is four years. Use the PW method